Question

a.	Explain briefly on the Branches of Accounting and describe the characteristics of useful information in Accounting
b.	State other methods available in calculating depreciation apart from At Cost and at Net Book based in measuring the assets of an organization.

Answer 1

(a) As a result of economic, industrial, and technological developments, different specialized fields in accounting have emerged.

The famous branches of accounting are: financial accounting,managerial accounting, cost accounting, auditing, taxation,AIS,fiduciary, and forensic accounting.

1. Financial Accounting

Financial accounting involves recording and classifying business transactions, and preparingand presenting financial statements to be used by internal and external users.

In the preparation of financial statements, Strict compliance with generally accepted accounting principlesor GAAPis observed.Financial accounting is primarily concerned in processing historical data.

2. Managerial Accounting

Managerial or management accounting focuses on providing information for use by internal users, the management. This branch deals with the needs of the management rather than strict compliance with generally accepted accounting principles.

Managerial accounting involves financial analysis, budgeting and forecasting, cost analysis, evaluation of business decisions, and similar areas.

3. Cost Accounting

Cost accounting considered as a subset of management accounting, cost accounting refes to the recording, presentation, and analysis of manufacturing cost. Cost accounting is very useful in manufacturing business since they have the most complicated costing process.

Cost accountants also analyze actual costs versus budgets or standards to help determine future courses of action regarding the company's cost management.

4. Auditing

External auditing refers to the examination of financial statements by an independent party with the purpose of expressing an opinion as to fairness of presentation and compliance with GAAP. Internal auditing focuses on evaluating the adequacy of a company's internal control structure by testing segregation of duties, policies and procedures, degrees of authorization, and other controls implemented by management.

5. Tax Accounting

Tax accounting helps clients follow rules set by tax authorities. It includes tax planning and preparation of tax returns. It also involves determination of income tax and other taxes, tax advisory services such as ways to minimize taxes legally, evaluation of the consequences of tax decisions, and other tax related matters.

6. Accounting Information System (AIS)

Accounting information systems involves the development, installation, implementation, and monitoring of accounting procedures and systems used in accounting process. It includes the employment of business forms, accounting personnel direction, and software management.

7. Fiduciary Accountng

Fiduciary accounting involves handling of accounts managed by a person entrusted with the custody and management of property of or for the benefit of another person.Examples of fiduciary accounting include trust accounting, receivership, and estate accounting.

8. Forensic Accounting

Fiduciary accounting involves court and litigation cases, fraud investigation, claims and dispute resolution, and other areas that involve legal matters This is one of the popular trends in accounting today.

CHARACTERISTICS OF USEFUL INFORMATION IN ACCOUNTING

(i) Relevance: Relevance is closely and directly related to the concept of useful information. Relevance implies that all those items of information should be reported that may aid the users in making decisions and predictions.In general information that is given greater weight in decision - making is more relevant

(ii) Reliability: Reliability is described as one, of the two primary qualities (relevance and relevant) that make accounting information useful for decision making .Reliable information is required to form judgements about the earning potential and financial position of a business firm. Reliability differ from item to item.

(iii) Understandability: Understandability is the quality of information that enables users to perceive its significance. The benefits of information may be increased by making it more understandable and hence useful to wider circle of users.

(iv) Comparability: Economic decision requires making choice among possible courses of actions. In making decisions, the decision maker will make comparison among alternatives, which is facilitated by financial information.

(v) Consistency: Consistency of method over a period of time is valuable quality that makes accounting number more useful. Consistent use of accounting principles from one accounting period to another enhances the utility of financial statement.

(vi) Neutrality: Neutrality is also known as the quality of 'freedom from bias' or objectivity. Neutrality means that , in formulating or implemeting standards, the primary concern should be the relevance and reliability of the information that results, not the effect that the new rule may have on a particular interest or users.

(vii) Materiality: The concept of materiality ptemeates the entire field of accounting and auditing. The materiality concept implies that not all financial information need or should be communicted in accounting reports, only material information should be reported and immaterial information may and Probably should be omitted.

(viii) Timeliness: Timeliness means having information available to decision makers before it loses its capacity to influence decisions. If information is either not available when it is needed or becomes available long after the reported events that it has no value for future action, it lacks relevance and it is little or no use.

(b) The most common depreciation method used in measuring the asset of an organization apart from cost and Net Book based:

(i) Straight line depreciation method

Straight line depreciation is avery common, and the simplest method of calculating depreciation expense. In straight line depreciation, the expenses amount is the same every year over the useful asset.

Depreciation Formula for the straight line method:

Depreciation Expense (Cost - salvage value) / useful life

(ii) Double Declining Balance Depreciation Method

compared to other depreciation methods, double declining balance depreciation results in a larger amount expensed in the earlier years as opposed to the laters years of an asset's useful life The method reflects the fact that assets are typically more productive in theirr earlier years than in their later years also, the practical fact that any asset (think of buying a car) loses more of its value in the first few years of its use. .

Formula :

Periodic Depreciation Expense = Beginning book value* rate of depreciation

(iii) Units of Production Depreciation Method

The units of production depreciation method depreciates assets based on the total number of hours used or the total number of units to be produced by using the asset , over its useful life.

Formula:

Depreciation expenses: (Number of units produced / Life in number of units)*(Cost - Salvage value)

(iii) Sum of the Years Digits Depreciation Method

The sum of the years digit method is one of the accelerated depreciation methods.A higher expense is incurred in the early years and a lower expense is incurred in the early years and a lower expense in the later years of the asset's useful life.

In the sum of the years digit depreciation method, the remaining life of an asset is divided by the sum of the years and then multiplied by the depreciating base to determine the depreciation expense.

Formula:

Depreciation Expense: (Remaining life / Sum of the years digits)*(Cost - Salvage value)

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