In the year to 31 December 20X3, Amy bought a new non-current asset and made the following
Question:
In the year to 31 December 20X3, Amy bought a new non-current asset and made the following payments in relation to it
________________________________________________ £.......................£
Cost as per supplier's list....................................12,000
Less: agreed discount...........................................1,000.......11,000
Delivery charge............................................................................100
Erection charge...........................................................................200
Maintenance charge..................................................................300
Additional component to increase capacity............................400
Replacement parts.....................................................................250
Required
a. State and justify the cost figure that should be used as the basis for depreciation.
b. What does depreciation do, and why is it necessary?
c. Briefly explain, without numerical illustration, how the straight-line and reducing balance methods of depreciation work. What different assumptions does each method make?
d. It is common practice in published financial statements in Germany to use the reducing balance method for a non-current asset in the early years of its life, and then to change to the straight-line method as soon as this would give a higher annual charge. What do you think of this practice? Refer to relevant accounting conventions in your answer.
Financial StatementsFinancial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Step by Step Answer:
Introduction To Financial Accounting
ISBN: 978-0077138448
7th edition
Authors: Anne Marie Ward, Andrew Thomas