In the world of accounting, the accounting estimate refers to a technique that the accountants would use to measure the items where the exact way of quantification is absent. Therefore, they will estimate the value of those items based on the knowledge and judgement that they have learned from their past experience.
Some people may think that accounting (Also see The Responsibilities of Accounting Department) estimates are not significant. However, it is something necessary for business owners to prove the values of their company to the investors. Thus, when the accountants are unable to quantify the amount, they have to gather more information. They need to use their experience, study the relevant historical data, collect data points, and they will value the items based on these as the actual amount for those items cannot be determined.
The process of making accounting (Also see What You Need to Know About Reserves in Accounting) estimates requires a certain level of expertise in accounting. Hence, it is more advisable for you to seek help from an accounting firm in Singapore. This is because compared to managing these estimates all on your own without know the exact way of doing it, seeking help and advice from the experts will help you to save time and energy, and you do not have to worry about the accuracy of your financial statements.
Depreciation would be one of the items that the accountants (Also see How Do the Accountants Close the Books?) will use accounting estimates. One would not be able to tell the amount of depreciation that the company should incur for a plant or machinery. Although he will be able to use the accounting (Also see Do You Know What Are Accounting Controls?) method, he would not be able to determine the amount that he should write down for that year based on accurate evidence or information. Hence, the accountants are responsible for finding out the percentage of depreciation that a company should incur. To do so, they will look at the useful life of that plant or machinery and its usefulness for the company.
Also, in terms of the useful life of a fixed asset, the accountant can hardly determine the number of years that the company will be able to use that asset. There is no quantifiable way that the accountants can use to identify how long the company will be using the asset after the purchase. Thus, they need to use the accounting estimates to determine the useful life of a certain fixed asset. The process includes studying historical data, looking at similar fixed assets that the companies of the same kind own, and using the expertise and knowledge they have to predict the useful life of a plant or machinery.