Suppose you are an accountant in an accounting firm, called Small Business Accountants (SBA), that helps small and medium-sized companies prepare their financial statements. Entertainment Ltd, which is in the movie rental business, is the client of SBA. Entertainment Ltd rents out movies over a period of 2 years and then either sell or destroys them. However, the management of Entertainment Ltd wants to show increased profits because it wants to apply to a local bank for a loan. It believes that the annual depreciation charge can be lowered by keeping the movies for 3 years. You have been entrusted by your manager at SBA to help Entertainment Ltd with the preparation of its financial statements. 

Required: 

Write a response to Entertainment Ltd’s proposed depreciation policy for movies. Please refer to NZ IAS 16 in your response.

Answer rating: 100% (QA)

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