The manager of your company said that he and his board members do not understand the depreciation of fixed assets. He asked you to explain the meaning of depreciation to the board of directors. Explain the issue of depreciation with examples.

The manager of your company said that he and his board members do not understand the depreciation of fixed assets. He asked you to explain the meaning of depreciation to the board of directors. Explain the issue of depreciation with examples.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter12: Auditing Long-lived Assets And Merger And Acquisition Activity

Section: Chapter Questions

Problem 7CYBK

See similar textbooks

Related questions

Q: This is the situation where liquidation value is considered for industries which purpose are related…

A: The liquidation of any company is the process to wind up the company so because they loss money -…

Q: Use the FASB Accounting Standards Codification system to conduct the research your manager has…

A: Financial Accounting Standards Board (FASB): FASB is the organization which creates, develops,…

Q: Present an argument to support the idea that your company’s land should not be depreciated, even…

A: Depreciation seems to be an accounting technique for distributing a physical or material asset's…

Q: Neville Enterprises has a number of fully depreciated assets that are still being used in the main…

Q: A company has suffered operating losses for some time but is now operating profitably and expects to…

A: When there lies a deficit in the retained earnings on the balance sheet of a company then quasi…

Q: A company believes that it is subject to scrutiny by particular interest groups such as employee…

A: Revenue recognition is a pillar of accrual accounting that states that revenue must be recognised…

Q: written down value method is more appropriate than the straight-line method

A: Under written down value method, accelerated depreciation is charged in initial years of useful life…

Q: The asset manager is generally NOT responsible for: Finding properties for the investor/principal…

A: Solution;- Each corporation has seperate departments and each department is headed by respective…

Q: The following are deductible losses, except: * Loss on disposal of delivery truck Loss sustained…

A: The answer for the multiple choice question and relevant explanation are presented hereunder : In…

Q: The property, plant and equipment account of Cuddle PH was revisited by its property officers. They…

A: Loss from Derecognition = Cost of the assets - Accumulated Depreciation

Q: TRUE OR FALSE? Once decided by management as an asset held for sale, management can never change…

A: An entity should classify an asset held for sale category when the carrying amount of an asset will…

Q: When a company changes the way it depreciates an asset in midstream, what change would be made to…

A: Depreciation: Depreciation refers to the reduction in the monetary value of a fixed asset due to…

Q: The property, plant and equipment account of Expert was revisited by its property officers. They…

A: Depreciation means the loss in value of assets because of usage of assets , passage of time or…

Q: Tom Parkey has prepared the following list of statements about depreciation. 1. Depreciation is a…

A: Depreciation is a method in accounting to allocate the cost of fixed ( tangible ) asset over its…

Q: Consider yourself the financial controller of Alpha. The managing director, who is not an…

A: IAS 16 describes as principles for recognizing property, plant, and equipment as assets, measuring…

Q: ARISE CO. has suffered operating losses for some time, but is now operating profitably and expects…

A: Losses in this sum are :- (i) Fall in value of PPE (ii) Fall in value of inventory (iii) Unaccured…

Q: The company controller, Barry Melrose, has asked for your help in interpreting the authoritative…

A: 1. 2.

Q: are depreciation methods important in the business arena? Explain the differences among the…

A: Depreciation refers to the concept of determining the rate at which an asset is diminishing in its…

Q: Braxton Inc. is considering the write-off of a limited-life intangible because of its lack of…

Q: How do businesses account for depletion of natural resources? What is the relevant AASB regarding…

A: SOLUTION- NATIONAL RESOURCES (NR) ARE ASSETS IN THE FORM OF INVENTORIES FOR COMPANIES WHOSE MAIN…

Q: Which of the following is not an example of an item that would be a contingent asset? a A…

A: Contingent asset is an economic benefit depends on the future happening of an event which is not in…

Q: The certified public accountant is frequently called upon by management for advice regarding methods…

A: Depreciation: Depreciation refers to the reduction in the monetary value of a fixed asset due to…

Q: Assuming that there are no income taxes, which of the following is correct concerning depreciation?…

A: Depreciation is reduction in value of asset due to wear and tear of asset with the passage of time…

Q: (d) On what basis should management select from these two methods to depreciate the machine? Justify…

A: The management should opt for reducing balance method of depreciation for the above scenario: This…

Q: ARISE Co. has suffered operating losses for some time, but is now operating profitably and expects…

A: Retained earnings is defined as the amount of profit retained by the firm in normal course of…

Q: What the advisory officer do if he didn't success after following the steps or doing reconstruction…

A: The advisory officer is responsible for the identification of areas where improvement can be done…

Q: raxton Inc. is considering the write-off of a limited-life intangible because of its lack of…

A: Limited Life Intangible Asset: Assets with the limited life are known as limited life intangible…

Q: How would you define depreciation and explain its purpose to someone who is not taking this course?…

A: Depreciation expense is the reduction in the value of assets due to normal wear and tear, the…

Q: Sometimes the value spent by a corporation is recorded as an asset and sometimes as an expense. Find…

A: Following are the answers to the given questions

Q: In the accounting literature, there is substantial scepticism towards the adoption of the…

A: The process of defining, assessing, and reporting transactions to regulatory authorities, tax…

Q: ARISE Co. has suffered operating losses for some time, but is now operating profitably and expects…

A: Losses in this questions are :- (i) Fall in value of PPE (ii) Fall in value of inventory (iii)…

Q: Depreciation is the reduction in the usable value of fixed assets due to normal wear and tear of…

A: Normal depreciation: It refers to the reduction in the value of an asset over a period of time due…

Q: Why would a company use accelerated depreciation instead of straight-line depreciation

A: The depreciation expense is charged on fixed assets as reduction is value of the fixed assets with…

Q: When an independent valuation expert advises an entity that the salvage value of its plant and…

A: When an independent valuation expert advises an entity that the salvage value of its plant and…

Q: Rahul is new junior accountant with Hardwork Mills Private Limited he wants to understand normal…

A: Normal Depreciation : It refers to the reduction in the usable value of fixed assets due to normal…

Q: Consider yourself the financial controller of Alpha. The managing director, who is not an…

A: Answer: Goodwill is a fixed intangible asset that offers the company competitive advantages.…

Q: Consider yourself the financial controller of Alpha. The managing director, who is not an…

A: The goodwill is a fixed intangible asset that provides economic benefits to the company. A goodwill…

Q: he depreciation in housekeeping is for a small van that is used to carry the housekeepers and their…

A: The segmented income statement is the one which offers the additional or extra detail through…

Q: A company has suffered operating losses for some time but is now operating profitably and expects to…

A: Note :- Quasi reorganization means where assets and liabilities are restated at fair value and…

Q: Normally, depreciation should not be recognized on plant assets during their construction period.…

A: The depreciation expense is charged on fixed assets as reduction in value of fixed assets with the…

Q: Consider yourself the financial controller of Alpha. The managing director, who is not an…

A: International Financial Reporting Standards (IFRS) are the accounting standards developed by the…

Q: The plant manager of a manufacturing firm suggested in a conference of the company’s executives that…

A: A change in the amount of annual depreciation recorded does not change the facts about the decline…

Question

Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

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.

Similar questions

What is depreciation? Why are depreciation methods important in the business arena? Explain the differences among the depreciation methods covered in chapter 10. Based on your evaluation, what is the best method of depreciation and why? What is the least used and Why?
Depreciation continues to be one of the most controversial, difficult, and important problem areas in accounting. Required: 1. Explain the conventional accounting concept of depreciation accounting, and discuss its conceptual merit with respect to (a) the value of the asset, (b) the amount(s) expensed, and (c) the discretion of management in selecting the method. 2. Answer the following: a. Explain the factors that should be considered when applying the conventional concept of depreciation to the determination of how the value of a newly acquired computer system should be assigned to expense for financial reporting purposes. (Ignore income tax considerations for this case.) b. What depreciation methods might be used for the computer system?
Neville Enterprises has a number of fully depreciated assets that are still being used in the main operations of the business. Because the assets are fully depreciated, the president of the company decides not to show them on the balance sheet or disclose this information in the notes. Evaluate this procedure.
“In the accounting literature, there is substantial scepticism towards the adoption of the impairment-only approach to goodwill and other assets with an indefinite useful life (e.g. Li & Sloan, 2017; Ramanna & Watts, 2012; Watts, 2003; Zhang & Zhang, 2017). The main argument for such scepticism is that managers will let their professional judgments at the acquisition date be affected by personal motives; and as a consequence, they may compromise future economic impairments.” Peter Frii & Mattias Hamberg (2021) What motives shape the initial accounting for goodwill under IFRS 3 in a setting dominated by controlling owners?, Accounting in Europe, 18:2, 218-248, DOI: 10.1080/17449480.2021.1912369 Required Critically appraise the treatment of goodwill and impairment within the current IFRS3 Business Combinations and conclude how issues with this standard have led to poor quality accounting information as a consequence of the Covid-19 pandemic.
What is the difference between depreciation expense and accumulated depreciation? What two items surprised you that a company is allowed to capitalize? What do you know as reasons a company may choose one deprecation method over another?
Which of the following statements is false? A For tax purposes, companies can use the MACRS depreciation method. B When you change a depreciation estimate, such as salvage value, you need to make an adjustment to retained earnings. C If the expected future cash flow is less than the carrying amount, the asset is considered impaired. D If an impairment loss is recorded, depreciation must be recalculated since the book value changed. The answer A is wrong
At a recent meeting of the accounting staff in your company, the controller raised the issue of using present value techniques to conduct impairment tests for some of the company's fixed assets. Some of the more senior members of the staff admitted having little knowledge of present value concepts in this context, but they had heard about a FASB Concepts Statement that may be relevant. As the junior staff in the department, you have been asked to conduct some research of the authoritative literature on this topic and report back at the staff meeting next week. Instructions If your school has a subscription to the FASB Codification, go to http://aaahq.org/asclogin.cfm to log in and access the FASB Statements of Financial Accounting Concepts. When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following items. (Provide paragraph citations.) (a) Identify the concept statement that addresses present value measurement in…
It is the gradual diminution of the useful value of tangible property resulting from wear and tear and normal obsolescence. It is also applied to the amortization of intangible assets the use of which in the trade or business is definitely limited in duration. Group of answer choices Depreciation Depletion Obsolescence Bad debts
Which of the following statements is false? A For tax purposes, companies can use the MACRS depreciation method. B When you change a depreciation estimate, such as salvage value, you need to make an adjustment to retained earnings. C If the expected future cash flow is less than the carrying amount, the asset is considered impaired. D If an impairment loss is recorded, depreciation must be recalculated since the book value changed.
Which of the following statements are FALSE? a. MACRS is the only depreciation method approved by the IRS for computing income-tax liability and it is also the most commonly used method in the United States for financial reporting. b. MACRS stands for Modified Annuitized Cost Recovery System. c. MACRS-GDS is based on double declining balance switching to straightline depreciation. d. MACRS-ADS is based on straight-line depreciation.
Companies usually depreciate assets such as buildings even though those assets may be increasing in value. Why?
Which of the following statements about depreciation is not true? A. Depreciation does not mirror the actual loss of value over time. B. Depreciation is the allocation of the asset’s cost to expense over the expected years of use. C. If the fair value of the asset increases, depreciation is reversed to reflect the change in value. D. U.S. GAAP requires depreciation methods to be systematic and rational.