Factors affecting the choice of a depreciation method in merchandising businesses
Abstract
For every firm out there, modern equipment, which is a part of tangible fixed assets, plays an important role in the production process. However, in the process of using fixed assets for business, they may or may not change in shape, but their production capacity (use value) and their residual value will be reduced. To make sure that the accounting of their values is handled well for their upgrades in the future, depreciation is required. In Vietnam, according to the legal law of the Ministry of Finance, there are three types of depreciation methods which enterprises can choose from. They are straight-line method, declining balance method, and units of production method. While it
is true that each company can choose the method which it wants to use, there exist different factors that lead to different choices of depreciation methods, which will result
in the difference in the cost of depreciation of fixed assets and thereby affect the taxable income of the business. This study proposed the model to test the five determinants that affect the depreciation policy of Vietnamese merchandising businesses and lead them to
the choice of straight-line method. The quantitative research was conducted, and a multiple regression model is used to test the hypotheses. The results indicate that the factors of simplicity and comparability are significant in the model. Managerial implications of the proposed model are discussed. Studying and understanding clearly the factors that affect the choice of a depreciation method of an enterprise is always a part, which can lead to more accurate accounting of the number and the value of existing assets, especially fixed assets, of the important factors contributed to improve the performance of firms. The more understanding that the accountants can gain for these factors; the more appropriate a method can be focused on. Furthermore, choosing the best suitable method for depreciation can also help the management to save time on decision
making.