AssessmentTwo depreciation methods are used, the straight-line method and the declining balance method. Assessing the useful life (UL) and residual value (RV) of an asset is extremely subjective. This will only be known for sure after the asset is sold or scrapped, which is too late to calculate annual depreciation. It is therefore necessary that estimates be reviewed at the end of each reporting period. If either changes significantly, then that change must be taken into account over the estimated remaining useful economic life. Depreciation charges are based on the value of the asset and the underlying depreciation assumptions. Now, if due to these assumptions too little or too much depreciation expense is charged, once charged to the profit and loss account it cannot be adjusted retrospectively in future years. If too much depreciation is expensed, the value of the asset is then revalued upwards and the restated depreciation expense is expensed again via PnL. If the depreciation is too low, the value of the asset is then revalued downwards and the restated depreciation charge is expensed a second time via PnL.