Depreciation accounting in publicly quoted companies in Kenya

Abstract

Depreciable assets comprise a significant portion of the assets bf many business enterprises. Depreciation can therefore have a significant effect in determining the financial position and results of operations of those enterprises. This study investigates depreciation practices of publicly quoted companies in Kenya. The study covers the level at which estimates are made, depreciation methods and factors that influence the choice. The study revealed that: straight line method is more popular with reducing balance method only being used to certain extent. Asset life estimate is common among firms with reviews when need arises. Consultants, mainly valuers are used to arrive at these estimates and decisions.Depreciation decisions are observed to differ across firms even in the case of those with common fixed.assets It was statistically reaffirmed that there is a positive relationship between depreciation expense and operating income. The studied companies do not refer to capital allowances at all when arriving at the asset lives. Fixed assets being prone to effects,of wear and tear and obsolescence.,considerable attention should be placed on depreciation decisions by way of reviews and revisions.