As Level Accounting Unit 2 Revision

| The partners are jointly and severally liable for business debts and obligations. The partners are held personally responsible for the business and may be sued personally for liability. Partners’ personal assets are subject to lawsuit(s) made against the business. Lack of continuity; death of a partner may end the partnership/business if a buy/sell agreement is not in place. Disagreements may be difficult to resolve.

Even though Mr. Fordham mentions that he in his “Statement of Cost of Goods Manufactured for Year Ended Dec. 31 1956” that he depreciated $24,000 of Plant and Equipment, I decided to change the depreciation schedule so that PP&E would be fully depreciated by the end of the 5 year period. Thus, I used a straight-line depreciation schedule that accumulated $40,000 worth of depreciation per year, which was spread evenly across the 12 months of this Balance Sheet (or $3,333.33 per month).

For the depreciation part, we adopted the straight-line method. Here since the depreciation of year 1984 was $1270, we just assumed all the depreciation amount to be equal to $1270 till the year 1989. With all of these previous assumptions, we obtain the complete pro forma financial statement and the cash flow table for the Collinsville Plant.

The organizational forms a company might have as it evolves from a start-up to a major corporation are: sole proprietorships, partnerships and corporations. The advantages of a sole proprietorship are that is is easily and inexpensively formed; is subject to few government regulations and it’s income is not

An accounting cycle is a process, or a series of activities, that consists of collecting an organization’s transactions at the end of a reporting period to prepare essential financial statements of a business (Fleury, 2015). The accounting cycle is a strict, methodical set of rules used to ensure the accuracy and conformity of financial statements (Investopedia, 2017). The steps involved with an accounting cycle, the roles each of the step facilitate, the impact of omission, and what financial statements are assembled from the accounting cycle data.

The value of fixed assets typically decreases over time. The amount of the decrease each year is accounted for and is called depreciation. Depreciation for the year is expensed on the income statement and added to the accumulated depreciation account on the balance sheet. So the value of the fixed assets on the balance sheet is reduced by the accumulated depreciation.

1. The first step to evaluating the cash flows is to conduct the depreciation tax flow analysis. Depreciation is not a cash flow, but the depreciation expense lows the taxes payable for the company. As a result, the tax effect of deprecation needs to be calculated as a cash flow. There are two depreciable items on the company's balance sheet the building and the equipment. The equipment is known to have a seven year depreciable life, which will be assumed to be straight line. The building is also assumed to be subject to straight line depreciation, this time of forty years. The tax saving reflects the depreciation expense multiplied by the tax rate, which in this case is assumed to be 28%. The following table illustrates the tax effect in future dollars of the depreciation expense:

Accounting is commonly described as the language of business. It is very important for all business owners to have very good understanding of their finances. Having the knowledge of your business finance, you will know where the money is going. Every business owner should have a good understanding of finance. To have a good understanding business owners needs to understand basic accounting steeps, how does accounting play a role in their business, how to define a financial statement and how the omission of any of these steps would affect the success of a business. Once you have an understanding of accounting/finance and the how it plays

c. Depreciation is computed using the straight-line method over the asset’s estimated useful life, which is determined by asset category as follows: Buildings and improvements (5 – 40 years); Store fixtures and equipment (3 – 15years), Leasehold improvements (Shorter of initial lease term or asset life); Capitalized software (3 – 7 years).

| In Year 1, depreciation is $5,000 plus 15% of the asset’s outlayFrom Year 2, depreciation is either * 30% of the asset’s book value; or * if the asset’s book value is less than $6,500, depreciation is the asset’s book value (i.e. asset is depreciated to zero once book value < $6,500)

As stated above this does have its disadvantages as decisions can be slow and staff can become to involved in the managing of the business.

The type of depreciation method the Target Corporation uses is a straight-line method. Property and equipment is depreciated using the straight-line method over estimated useful lives or lease terms if shorter. “Target amortizes leasehold improvements purchased after the beginning of the initial lease term over the shorter of the assets' useful lives or a term that includes the original lease term, plus any renewals that are reasonably assured at the date the leasehold improvements are acquired” (Stock Analysis, n.d.).

Depreciation is the reduction in the value of certain fixed assets. It is a periodic reduction of fixed assets, usually done every year. Fixed assets are assets that add value to the company. Examples of fixed assets that can be depreciated are vehicles, buildings, machinery, equipment and fixture and fittings. The only fixed asset that is not depreciated is land, because it is not worn-out overtime, unless natural resources are being exploited. When a company buys a new fixed asset it doesn’t account for the full cost of it as one single large expense, instead the expense is spread over the life time of the asset. This is done by depreciating the asset. For example a company purchases a CNC router for €50,000 and will be used for five year. If they pay the full amount in the

Net book value at end of year 1 is $8,793. Less what you received on the sale $7,500. Gives you a disposal loss of $1,293 using the straight-line method of depreciation. You then add the disposal loss from the previous years depreciation $1,880, which results in a total income statement impact of $3,173.

To account for inventory, the company uses, first in first out policy. Property plant and equipment are recorded at cost less the accumulated depreciation amount. Depreciation is charged on straight line method