Communication Case 11–2
• LO11–1
At a recent luncheon, you were seated next to Mr. Hopkins, the president of a local company that manufactures bicycle parts. He heard that you were a CPA and made the following comments to you:
Why is it that I am forced to recognize depreciation expense in my company’s income statement when I know that I could sell many of my assets for more than I paid for them? I thought that the purpose of the
At the conclusion of the luncheon, you promised to send him a short explanation of the rationale for current depreciation practices.
Required:
Prepare a letter to Mr. Hopkins. Explain the accounting concept of depreciation and include a brief example in your explanation showing that over the life of the asset the change in value approach to depreciation and the allocation of cost approach will result in the same total effect on income.
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Chapter 11 Solutions
INTERMEDIATE ACCOUNTING (ACCT 3200B)
- Exercise 10-16 Disposal of assets LO P2 Diaz Company owns a machine that cost $126,900 and has accumulated depreciation of $91,300. Prepare the entry to record the disposal of the machine on January 1 in each seperate situation. The machine needed extensive repairs and was not worth repairing. Diaz disposed of the machine, receiving nothing in return. Diaz sold the machine for $17,000 cash. Diaz sold the machine for $35,600 cash. Diaz sold the machine for $40,100 cash.arrow_forwardQUESTION FOUR An accounting assistant of yours has been criticized over a piece of assessed work that he produced for his study course for the giving the definition of a non-current asset as a “physical asset of substantial cost, owned by the company, which will last for longer than one year”. Required Provide an explanation to your assistant of the weaknesses in his definition of non-current assets when compared to the International Accounting Standards Board’s (IASB) view of assets.arrow_forwardCan you please check my workarrow_forward
- ACCT 102arrow_forwardQUESTION 2 [10 MARKS]Danny Zuma operates a security business in Inanda, Kwazulu-Natal. He seeks advice on whether the following expenses and losses are deductible in terms of the general deduction formula:1. One of Danny’s vans, with a tax value of R180 000 on the date, was hijacked when the driver was returning after having transported a team of guards to a client’s business premises in Springfield. The van was not insured.2. One of Danny’s guards was badly bitten by one of the guard dogs while on duty. The court granted the guard compensation amounting to R30 000 on 25 April 2023 which Danny duly paid on 30 April 2023.3. Three of Danny’s team leaders attended a two-day training workshop in Midrand, Johannesburg on the latest security techniques, at a cost of R16 000 per person.Required:Determine with reference to tax cases (case law) whether the expenses/losses above [1-3] are deductible in terms of the general deduction formula.arrow_forward4G+ 12:47 PM 0.4KB/s ill 68 וח 01:14:08 Remaining Multiple Choice Which statement is incorrect with respect to depreciation? Depreciation is not recognized if the fair value of an asset exceeds carrying amount. Depreciation ceases at the earlier between the date the asset is classified as held for sale and the date the asset is derecognized. The depreciation method shall reflect the pattern in which the asset's economic benefits are consumed by the entity. Depreciation of an asset begins when it is available for use or when it is in the location and condition necessary for the intended use. 45 of 75arrow_forward
- 4G 4G 10:14 O O O A e 0.00 01:56:17 Remaining Multiple Choice X Corporation acquired a residential lot worth P1,500,000 for its supervisor and constructed upon it a house at a cost of P3,000,000. Ownership of the house and lot was turned over to the supervisor upon completion of the construction. 60% of the value of the house and lot will be deducted from the supervisor's salary over a period of 5 years. What is the monetary value of the fringe benefit? P1,800,000 P2,700,000 P3,000,000 P4,500,000 51 of 60arrow_forwardNeed help correctingarrow_forwardq15 Which of the following are circumstances that may indicate that the asset may be impaired? (i) A motor vehicle has been damaged in an accident (ii) A debtor is in financial difficulty (iii)Consumer tastes have changed in the market and sales prices of the inventory have been reduced so that the goods will have to be sold at much lower prices, if at all (iv) Cost prices of raw materials used in production have increased Select one: a. (i), (ii), (iii) and (iv) b. (i), (ii), (iv) only c. (i) and (iv) only d. (iv) onlyarrow_forward
- MODULE 5 PARRISH 8-4 USE OF ASSET Please take a look at the question below and give the correct answer and please explain the transaction and how it would be recorded. Thank you! Wee Small Company has an asset that was just purchased. THe cost of hte asset was $72,000. The company has determined that the salvage value is $2,000, and the life of the asset is five years. Depreciation is straight-one. 1) Journalize the entry to record depreciation for the first year of the asset's life. 2) Journalize the entry to record depreciation for the first month of the asset's lifearrow_forwardExerclse 8-16 Disposal of assets LO P2 Diaz Company owns a machine that cost $126,800 and has accumulated depreciation of $93,000. Prepare the entry to record the disposal of the machine on January 1 in each seperate situation. 1. The machine needed extensive repairs and was not worth repairing. Diaz disposed of the machine, receiving nothing in return. 2 Diaz sold the machine for $17,500 cash. 3. Diaz sold the machine for $33,800 cash. 4. Diaz sold the machine for $41,800 cash. X Answer is not complete. No Date General Journal Debit Credit Jan 01 Accumulated depreciation-Machine 93,000 O Jan 01 Cash 17,500 Accumulated depreciation-Machine 93.000 Loss on sale of machine 16,300 Machine 126.800 O 3 Jan 01 Cash 33,800 O Accumulated depreciation-Machine 93.000 4 Jan 01 Machine 126,800 Xarrow_forwardquestion 60arrow_forward
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