Question
JB Hi-Fi has just implemented a new inventory ordering system at a cost of $52 million. The system vastly simplifies and speeds up the ordering process with suppliers and provides real time information concerning inventory distribution and delivery. The management of JB Hi-Fi expects the new system will provide the retailer with a competitive advantage in the market place by facilitating quick product delivery to customers. As the senior accountant at JB Hi-Fi the management has requested you to depreciate the system over 10 years with a $4 million residual value using the straight line method.
You have found that Costal Trading Corporation is constructing a new shipping port and will be using the new Super Freight T1000 ship to deliver electronic products ordered online direct from China to Australia in record time. The new port and ship will be in operation in 3 years time. Based on this information explain in detail whether you consider the use of the straight line depreciation method to be appropriate for the new inventory ordering system. Identify and justify alternative depreciation method(s) that may be appropriate in this case.