A lecturer from Collage of Administration and Economics /Kerbala University has published a scientific study for Using the discounted net revenue as a basis for measuring depreciation
in Proceedings of the Third Scientific Conference for Technical Education Research in Iraq, April 1992
Dr. mohammed wafi Abd Eawn
Abstract:
The current accounting treatment of depreciation is based on the fact that depreciation is a system for distributing the historical cost of the fixed asset over the years of its useful life in a specific manner. Where the fixed asset is recorded when purchased in the records at its historical cost and this value remains unchanged throughout the years of use despite the fluctuations that occur in the general level of prices. Also, showing values higher than historical costs in the records due to the increases in price levels contradicts the accounting principle (revenue realization ), which stipulates that the revenue is realized only at the time of sale, and therefore the display of fixed assets (unsold) at values higher than historical costs leads to the emergence of unrealized profits.
Accordingly, the current treatment of extinction is based on accounting principles that have been subjected to many criticisms, which are inconsistent with the modern view of accounting as a system that aims to provide the beneficiaries with economic information that is identical to the truth and appropriate to the problem that the decision maker suffers from, in order to assist him in making rational and wise decisions.
The research problem crystallizes in that showing the long-term assets at historical cost and calculating the depreciation on these assets by distributing the historical cost over the years of their useful life does not show the true value of the assets in the statement of financial position nor the correct value of depreciation in the income statement. This, in turn, leads to a distortion of the true image of the financial position and results of the company’s business. The research was based on a basic premise that “measuring the extinction according to the method of declining net discounted revenue leads to the provision of economic information appropriate to the needs of the beneficiaries and thus making rational and wise decisions.” The research aimed at the following: –
- Measuring the depreciation of the research sample company during the research period by the method of declining net discounted income.
- Evaluation of the method of declining net discounted revenue.
- Knowing the effects of the method on making decisions.
