Question

During the current year, a large chain of auto mechanic shops adopted the policy of expensing small tools costing less than $100 as soon as they are acquired. In previous years, the company had carried an asset account, Small Tools, which it had depreciated over the average expected useful lives of the tools. The balance in the Small Tools account represented about 1% of the company’s total capital assets, and the depreciation expense on the tools was 0.3% of its sales revenues. It is expected that the average annual purchases of small tools will be approximately the same amount as the depreciation that would have been charged on them. Is this in accordance with accounting standards? If so, briefly explain why. If not, identify the accounting principle or concept that has been violated and give a brief explanation of the nature of the violation.


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  • CreatedJune 11, 2015
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