How choice of depreciation method affects reported profits

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Reference no: EM13183350

Diversified Rentals Ltd owns a large fleet of different vehicles which are each classified into one of three categories; supercars, vans and city rentals. Newly acquired supercars are very popular when first acquired, but rental demand quickly falls as newer models are released. Supercars are kept in the fleet for 3 years before being sold. Demand and rental revenues for vans are relevantly consistent through the vehicle life, regardless of condition or appearance. The vans are disposed of only when they are completely worn out. The vans are generally completely worn out once they have travelled

350,00km. Finally the demand and revenues for city rentals are relatively consistent up until a point when customers demand vehicles with higher safety standards and Diversified Rentals Ltd is required to dispose of these vehicles. The new chief financial officer of the firm requires advice on which depreciation method to use. Provide recommendations and justifications of which depreciation method(s) are appropriate in this case. Explain how the choice of depreciation method affects reported profits.

Reference no: EM13183350

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