Ambay, Fenladen C.

ACD – AEC 12
TASK 1 July 8, 2021

1. What are the different methods of depreciation? Explain briefly each method.
There are four different depreciation methods. The first three depreciation
methods are based on time, while the latter is a depreciation method based on
actual physical use. Under the straight line method, the depreciation of PPE is
recognized uniformly. It means that the value of a certain asset is reduced using the
same amounts over each period until it reaches its residual/salvage value. It is
calculated by dividing the depreciable amount by its estimated useful life. Under
sum-of-the-years’ digits, the depreciable amount is determined by utilizing a series of
fractions. This method accelerates the recognition of depreciation. It is also useful for
assets that may quickly become obsolete. Sum-of-year depreciation is computed by
multiplying SYD rate and depreciable amount. The double declining balance method
is also a form of accelerated depreciation method as it depreciates assets twice as
quickly. Under this method, a fixed rate is applied on the carrying amount rather than
the asset’s depreciable amount to compute the depreciation. Lastly, under the units
of production method, the depreciation is determined based on the value of an asset
over time. The computation of cost is dependent on how heavy an asset is used or
the number of outputs it produced during the period.
2. Define Leasehold Improvement. Do you agree that leasehold improvement is
considered as an intangible asset? Why?
When a tenant made any customizations or modifications such as painting the
walls, putting up display shelves, changing flooring and lighting, etc., to a rental or
leased property, it is called leasehold improvement. Such action is done mainly to
satisfy the particular needs of the tenants. Leasehold improvements are usually
immovable, so upon the expiration of the lease, they are automatically transferred to
the landlord without charge. Though they have physical substance, I consider them
as intangible assets objectively because the occupant does not own the leased
property.
3. What are the three revaluation techniques? Explain briefly each.
There are three valuation techniques for fair value measurement. First is the
market approach, which relies on market-generated outputs such as prices, data,
and other relevant information that also deals with similar assets, liabilities, and or a
group of assets and liabilities. Second is the cost approach, often referred to as
asset approach, which reflects the price a buyer should pay to equate the cost of an
asset. This method provides a reasonable value indication by calculating all amounts
of money required to replace the service capacity of an asset. Third is the income
approach, also referred to as income capitalization approach, which measures fair
value as the current value of the expected future cash flows that an entity generates.
In using this approach, the fair value reflects the current market expectations
regarding those future amounts.