FINANCIAL

ACCOUNTING
Syed Suleman Nabi
14p00035

About Article

Name: Accounting in Partnerships

Author(s): Steven Huddart and Pierre
Jinghong Liang
The American Economic Review,Vol. 93,
No. 2, Washington, DC, January 3-5, 2003
(May, 2003), pp. 410-414

Issue

concerningi ncentive structuresw ithin

public accounting firms in particular, and
partnerships
of professionals in general
dispute over the division of profits
between the firm's

In partnerships, ownership and control lie

with the partners. Furthermore, each
member of a partnership is endowed with
human cap-ital that may be employed
either within the firm or without. Every
partner is simulta-neously a principal (who
shares in the net output of the
partnership) and an agent (who produces
output). Ownership and control are
diffused among many persons, and
partners are subject to moral hazard. Each
must be motivated by his peers. .

According to article

THE basic data needed for calculating

depreciation for any sector are:
1) The total value of existing capital stock
in use
2) The price series of assets and
3) The life-span of the long-term assets.

1.
2.
3.
4.

There are four steps of

getting series of
depreciation in National
level: figures
Collection depreciation
Estimation of depreciation
Index number
Getting the series of Depreciation

Step 1:
The collection of figures of
depreciation

The method of collection of depreciation Figure

for the different sectors depends largely on
the nature of the available source materials.
Figures available can be characterized in two
types according to theirs source of origin.
First Type are:
Figures from rural and urban survey data
National Sample Survey (NSS)
private individuals and
official and non-official bodies

Step 1:
The collection of figures of depreciation

The second category of data consisted of

ready materials prepared by the
organization's.

Balance-sheet analysis
Depreciation figures obtained from the
Census of Manufacture
Depreciation figures obtained from Sample
Survey of Manufacturing Industries
Annual Reports

Step2:
Depreciation estimation

One of the TWO method to estimate Depreciation is

Straight-line Method of Depreciation.

In straight line depreciation method, depreciation is
charged uniformly over the life of an asset.
We first subtract residual value of the asset from its
cost to obtain the depreciable amount.
The depreciable amount is then divided by the
useful life of the asset in number of accounting
periods to obtain depreciation expense per
accounting period.
Formula
Depreciation = (Cost Residual Value)
Life in Number of Periods

Step2:
Depreciation estimation

Second method to estimate Depreciation

is from the use of national Income
The difference between the gross and net
products has been regarded as the
provisional figure of depreciation in each
year in each sector.

Formula
NNP= GDP - Depreciation
Depreciation= GDP - NNP

Step3:
Index number

The next step in the procedure is to

calculate a series of index numbers of the
newly calculated depreciation in each of
the sectors

Formula
Index Number = Current Value x 100
Base Value

Step4:
Series of Depreciation

Lastly, the actual figures of depreciation

in each of the sectors for 1960-61 have
been extended back up to 1948-49 with
the help of the above-mentioned index
numbers of depreciation for the
corresponding sectors in the conventional
series to get he series of depreciation.

Results

This increase in the life-span of assets in

most of the sectors is matched by an
overall increase in the average life of the
total accumulated balance of assets in
the economy

As Life-span of Asset increases the

total Accumulated Depreciation
balance increases.

THANK YOU.