The Accountant, The Financial Manager And The Tax Officials Conception Of Depreciation And Capital Allowances In Business Operation.


 There are few if there is any business enterprises or organization that do not make use of fixed assets in one form or the other in their operations.

A sole proprietorship form of business unit for example a barrier or a retailer has fixed assets in the form of furniture and fittings, sheds or kiosk, mirror etc. The poor woman in the street who runs a retail shop may not find it very possible to manage without such things are shop, a table to display her wares and a chair and benches for herself and her customers.

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Even in big business unit engaged in either extracting or manufacturing processes require plants and machineries, furniture and other which constitute fixed assets. Suffice it to say in almost every productive venture.

Prudent management of business therefore requires that contributions made by these fixed assets when employed directly or indirectly in generating income or revenue for an enterprise be adequately recognized. Equally important is the need to recover fund expended on these fixed assets which may if possible be used in replacing such assets when they are finally put out of use because of one reason or the other. All these and others are depreciation recounting aims at fulfilling.

Depreciation may therefore be defined as “the loss in value of an asset due to wear and tear and deterioration, usually the loss in value is due primarily to wear and tear”. But it does sum to the researcher that financial analysts including of course the accountants regard depreciation as a systematic procedure of allocation not an accurate mathematical measure of the cost or value of a long use asset (fixed asset) over it’s useful life.

In other words depreciation is provision against conducting the business during the effective useful life of such asset and is not depended on the amount of profit earned. One may say that it is somewhat arbitrary computed and charged against income or revenue as other expenses.

This form of expense (Depreciation) apparently because of its nature is not allowed by the Board of Inland Revenue as deductible form profit for tax purposes. Capital allowances are rather allowed and deducted from profit, which will eventually be taxed.

The reasons for non-recognition of depreciation and its replacement with capital allowance as discovered were enumerated.

Capital allowance in definable as, allowances claimable by traders or self employed persons in respect of capital asset s which they use in their business, trade or profession in earning business income and which have suffered diminution in value during an accounting period”.

Capital allowances are uniform for each class of capital asset depending on cost of acquisition depreciation policy and method adopted.



  • This study entitled “the accountant, the financial manger and the tax official conception of depreciation and capital allowance as regards profit recognition by enterprises as regards profit recognition by enterprises organization.
  • To examine what financial analysts including accountant lookup to depreciation and capital allowance as serving.
  • To determine to what extent these purpose are being achieved, and ways of improving on them.
  • To determine the place of capital allowance in payable by such enterprises.
  • To determine whether depreciation and capital allowances serve the same purpose and if determine why one concept has not been discarded for the other.
  • To determine whether factors such as obsolescence inflation and tax incidence have any impact on depreciation policy formulation of enterprises and if, how these could be minimized.

The research attempts to highlight the importance of recognizing the concept of depreciation and capital allowance, most especially for the benefit of enterprises owned and or managed by persons who may  not have been knowledgeable about it.

The research study also making the business community and other users of accounting information aware of the important role of depreciation and capital allowances as they relate to fixed assets and profit recognition by organization.

Some of the popular depreciation method in use were looked into their merits and demerits, method of calculation and reflection in the financial statement of enterprises were treated. A simple method of computing capital allowances on fixed assets was illustrated for be benefit of enterprises officials or would be officials and offer who nay have been so endowed.


The study, the researcher believes will be of significance of the business community and other users of accounting information especially the ignorant business owners mangers and other readers of accounting information often published by enterprises as may be required by law.

It will also be of significance to enterprises not having in their notice and understanding the rudiments the methods of compilation and reflection in book of account and the importance of depression and capital allowances.


The concept of depreciation and capital allowances was examined form the accountancy and other related professions point of view.

As it is with such studies and research work, problems were encountered most of which were anticipated, in gathering necessary materials and data for the study.

  • Inadequate fund and time for the study: The researcher would have visited libraries and enterprises outside Enugu (within and outside the country) for material and gathering. Secondly random sampling was resorted to in choosing enterprises whose employers were interview ed in course of the study. The researcher believes that these have not had adverse affect on the study as adequate information necessary for the work was obtained and sampling method adopted was a true re presentation.
  • Problem of texts for the study: There were not many textbooks for the work many of these available were either not comprehensive enough or out dated for the study. The researcher however succeeded in getting some which he consider reliable and some of these not in line with current tried he had to up date for the study.
  • Lukewarm attitude of some enterprises officials: Some of the enterprises officials were not always willing to grant interviews and or provides adequate information on their enterprises policies as they affect the study.

The researcher firmly believes the materials and the information gathered were reasonably adequate for the research work.


ACCELERATED DEPRECIATION: Method whereby more of the depreciation charges are made in earlier year and less in later years accounting period.

The length of time or period on accounting statement (profit and loss account) covers assets.

Property both tangible and intangible owned and utilized by an enterprises.

APPROPRIATION: Distributions, transfers and division of available profit after deduction of due expenses and taxes.


Real and depreciable property used in a trade or business and held usually for more than on which capital allowances are claimable.

CAPITAL EXPENDITURE: Expenditure incurred on capital asset and is to be written of over the useful life of such.

CONTINUING BUSINESS: Often times going concern is used. The assumption that a business entity will continue in paternity unless otherwise state current cost.

CURRENT COST: The present cost of long use asset depreciation adjustment. Adjustment that might be made to depreciation based on the historical cost of fixed assets to bring it in line with current cost of fixed asset.

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