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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Depreciation continues to be one of the most controversial, difficult, and important problem areas in accounting.

Required:

  1. 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. 2. Answer the following:
    1. 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.)
    2. b. What depreciation methods might be used for the computer system?

1.

To determine

Explain the meaning of conventional accounting concept of depreciation accounting, and describe its conceptual merit with respect to the following:

(a) The value of the assets,

(b) The amount expensed, and

(c) The discretion of management in selecting method.

Explanation

Depreciation: Depreciation is a method of reducing the capitalized cost of long-lived operating assets or plant assets for the period the asset is used.

Explain the meaning of conventional accounting concept of depreciation accounting, and describe the conceptual merit of (a) the value of the assets, (b) the amount expensed, and (c) the discretion of management in selecting method as follows:

The conventional accounting concept is a system of accounting that aims to allocate the cost of property, plant and equipment in a systematic and rational manner over its estimated useful life of the assets. It is a process of cost allocation, but it is not used for asset valuation.

(a) The conceptual merit with respect to the value of the assets:

Conventional accounting concept is a static concept of depreciation in which the initial cost (cost of acquisition less salvage value) or the other value of assets is not changed over the life of the assets, thus the total depreciation expense over the life of an asset is equal to the initial cost of an asset (cost of acquisition less salvage value).

Conventional accounting concept is fully based on the cost concept and expense recognition concept...

2.

To determine

Explain (a) the factors that should be considered for applying the convention concept of depreciation and (b) the deprecation method that should be used for the computer system.

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