2. The following issues relate to clients of the firm of accountants you work for. Each company has a year-end of 31 December 2022. You are required to prepare detailed notes for your manager explaining the appropriate accounting treatments in each case along with supporting calculations as necessary. You should cite relevant accounting regulations in your answer. (i) Gerrard acquired an item of plant at a cost of £800,000 on 1 January 2020 that is used to produce and package pharmaceutical pills. The plant had an estimated residual value of £50,000 and an estimated life of five years. Gerrard uses straight-line depreciation. On 31 December 2022 (after depreciation had been calculated for the year), Gerrard was informed by a major customer (who buys products produced by the plant) that it would no longer be placing orders with Gerrard. Even before this information was known, Gerrard had been having difficulty finding work for this plant but by modifying production methods Gerrard now estimates that the plant will have three more years of useful life, and net cash inflows will be as follows: Year ended: £000 220 31 December 2023 31 December 2024 180 31 December 2025 170 On 31 December 2025, the plant is still expected to be sold for its estimated realisable value. Gerrard has confirmed that there is no market in which to sell the plant at 31 December 2022. Gerrard's cost of capital is 10% and the following values should be used: Value of £1 at: End of Year 1 End of Year 2 End of Year 3 0.91 0.83 0.75
2. The following issues relate to clients of the firm of accountants you work for. Each company has a year-end of 31 December 2022. You are required to prepare detailed notes for your manager explaining the appropriate accounting treatments in each case along with supporting calculations as necessary. You should cite relevant accounting regulations in your answer. (i) Gerrard acquired an item of plant at a cost of £800,000 on 1 January 2020 that is used to produce and package pharmaceutical pills. The plant had an estimated residual value of £50,000 and an estimated life of five years. Gerrard uses straight-line depreciation. On 31 December 2022 (after depreciation had been calculated for the year), Gerrard was informed by a major customer (who buys products produced by the plant) that it would no longer be placing orders with Gerrard. Even before this information was known, Gerrard had been having difficulty finding work for this plant but by modifying production methods Gerrard now estimates that the plant will have three more years of useful life, and net cash inflows will be as follows: Year ended: £000 220 31 December 2023 31 December 2024 180 31 December 2025 170 On 31 December 2025, the plant is still expected to be sold for its estimated realisable value. Gerrard has confirmed that there is no market in which to sell the plant at 31 December 2022. Gerrard's cost of capital is 10% and the following values should be used: Value of £1 at: End of Year 1 End of Year 2 End of Year 3 0.91 0.83 0.75
Oh no! Our experts couldn't answer your question.
Don't worry! We won't leave you hanging. Plus, we're giving you back one question for the inconvenience.
Submit your question and receive a step-by-step explanation from our experts in as fast as 30 minutes.
You have no more questions left.
Message from our expert:
Our experts are unable to provide you with a solution at this time. Try rewording your question, and make sure to submit one question at a time. We've credited a question to your account.
Your Question:
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Individual Income Taxes
Accounting
ISBN:
9780357109731
Author:
Hoffman
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Individual Income Taxes
Accounting
ISBN:
9780357109731
Author:
Hoffman
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College