For each of the following subsequent events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose.1. Settlement of a tax case at a cost considerably in excess of the amount expected at year-end.2. Introduction of a new product line.3. Loss of assembly plant due to fire.4. Sale of a significant portion of the company’s assets.5. Retirement of the company president.6. Issuance of a significant number of ordinary shares.7. Loss of a significant customer.8. Prolonged employee strike.9. Material loss on a year-end receivable because of a customer’s bankruptcy.10. Hiring of a new president.11. Settlement of prior year’s litigation against the company (no loss was accrued).12. Merger with another company of comparable size.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
For each of the following subsequent events, indicate whether a company should (a) adjust the financial statements, (b) disclose in notes to the financial statements, or (c) neither adjust nor disclose.
1. Settlement of a tax case at a cost considerably in excess of the amount expected at year-end.
2. Introduction of a new product line.
3. Loss of assembly plant due to fire.
4. Sale of a significant portion of the company’s assets.
5. Retirement of the company president.
6. Issuance of a significant number of ordinary shares.
7. Loss of a significant customer.
8. Prolonged employee strike.
9. Material loss on a year-end receivable because of a customer’s bankruptcy.
10. Hiring of a new president.
11. Settlement of prior year’s litigation against the company (no loss was accrued).
12. Merger with another company of comparable size.
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