The following is a copy of the auditor’s working paper relating to the testing of depreciation expense for the client New Millennium Ecoproducts. 

Required 

(a) The opening book value balances of the assets are carried forward from the prior period and reconciled to the general ledger (K-01). The auditor then adds half of the amount recorded as additions and subtracts half of the amount recorded as disposals in order to calculate the total balance to be multiplied by the depreciation rate. Why does the auditor use half of these values? 

(b) The difference between the estimated depreciation expense and the actual depreciation expense is dismissed as immaterial. Do you agree? Explain.

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CLIENT: New Millennium Ecoproducts EY 12/31/2016 $ 000 Period end: KO4-DEPRECIATION, DEPLETION, AND AMORTIZATION Currency/unit: Reference KO4 Debit/ Section 2: Perform analytical review procedures Book Values Buildings TM/Ref Equipment TM/Ref Total Opening balances + 1/2 Additions-Transfers - 1/2 Disposal 10,000 K-01 12,000 K-01 22,000 3,200 3,200 (200) (200) Assets fully depreciated at the beginning of the period 10,000 Total 15,000 25,000 Depreciation rate (years) per financial statements 10 Depreciation rate 10% 5% Our estimated depreciation expense 750 1,000 1,750 1,800 | к01 Actual depreciation expense K-01 800 K-01 1,000 Difference Key to audit tickmarks: v Agrees to notes to financial statements m Immaterial Comments: · As significant acquisitions were made at the beginning of the period, the depreciation expense is in line with expectations (unexplained difference with our rough estimate being not material).