FA 1-JIM CASE STUDY: TOPIC 4 (11) - DEPRECIATION and DRECOGNTION CASE STUDY 4 (ii) - DEPRECIATION AND DERECOGNITION OF NON-CURRENT ASSETS Paul and Jim continued to be impressed with your work so far and your attention to detail and so have approached you as six months have passed since taking over the TVA and the end of the financial year has arrived. Having acquired the PVTU during the year and taken over the TVA Jim has told Paul that he will need to depreciate his new assets but neither knows where to start. Jim and Paul are keen to help out, so they have gathered the following notes from Paul's records including some information from the accounting firm, Makin, Monet, Foreus, that Paul was paying to do his taxes but decided they weren't really reaching the heights he expected. Existing Assets Equipment o Cost Price - $12,800 Accumulated Depreciation - $3,552 o Depreciation Rate - 15% reducing balance Warehouse o Cost Price - $90,000 O Accumulated Depreciation - $14,000 o Depreciation Rate - Straight Line for 5 years with $20,000 scrap value Delivery Vehicle o Cost Price - $45,000 o Accumulated Depreciation - $3,375 o Depreciation Rate - 15% reducing balance New Assets PVTU which cost $37,500 IVA Acquisition DATE PARTICULARS P/R CREDIT S January 1 Accounts Receivable Store Inventory Fixture and Fittings Training Equipment Land and Buildings Goodwill Allowance for Doubtful Debts Cash Acquisition of the TVA DEBIT S 16,000 32,000 21,000 9,000 215,000 30,000 3,000 320,000 Paul really has no idea what the previous accountant's information meant or why they were "accumulating depreciation" on assets that he had already bought and paid for. 2 FA 1 - JIM CASE STUDY: TOPIC 4 (11) - DEPRECIATION and DRECOGNTION Required 1. Explain to Paul (and remind Jim) what the purpose of depreciation actually is and suggest what Makin, Monet, Foreus would have considered when deciding to depreciate the existing assets the way they have. In particular Paul is confused about the note about 5 years for the warehouse as he knows the warehouse came with a 10 year structural warranty 1. CASE STUDY 4 (ii) - DEPRECIATION AND DERECOGNITION OF NON-CURRENT ASSETS Paul and Jim continued to be impressed with your work so far and your attention to detail and so have approached you as six months have passed since taking over the TVA and the end of the financial year has arrived. Having acquired the PVTU during the year and taken over the TVA Jim has told Paul that he will need to depreciate his new assets but neither knows where to start. Jim and Paul are keen to help out, so they have gathered the following notes from Paul's records including some information from the accounting firm, Makin, Monet, Foreus, that Paul was paying to do his taxes but decided they weren't really reaching the heights he expected. Existing Assets - Equipment o Cost Price - $12,800 Accumulated Depreciation - $3,552 Depreciation Rate -15% reducing balance Warehouse o Cost Price - $90,000 o Accumulated Depreciation - $14,000 o Depreciation Rate - Straight Line for 5 years with $20,000 scrap value Delivery Vehicle o Cost Price - $45.000 o Accumulated Depreciation - $3,375 o Depreciation Rate - 15% reducing balance New Assets PVTU which cost $37,500 TVA Acquisition DATE PARTICULARS P/R CREDIT $ January 1 Accounts Receivable Store Inventory Fixture and Fittings Training Equipment Land and Buildings Goodwill Allowance for Doubtful Debts Cash Acquisition of the TVA DEBIT $ 16,000 32,000 21,000 9,000 215,000 30.000 3,000 320,000 Paul really has no idea what the previous accountant's information meant or why they were "accumulating depreciation on assets that he had already bought and paid for. Required 1. Explain to Paul (and remind Jim) what the purpose of depreciation actually is and suggest what Makin. Monet, Foreus would have considered when deciding to depreciate the existing assets the way they have. In particular Paul is confused about the note about 5 years for the warehouse as he knows the warehouse came with a 10 year structural warranty