2) When undertaking a review of assets in early June 2022, it was noticed that there was no depreciation expense for office furniture. This office furniture had been purchased on 1 July 2014 for $60,000 and was to be depreciated Over 5 years (with no residual value). Further investigation discovered that the office furniture had been accounted for as inventory and the cost was currently included as part of the amount of inventory in the statement of financial position. Assume this is material. REQUIRED Explain, in relation to the period ending 30 June 2022: • How this should be accounted for (i.e. including what, if any, adjustments are required and the nature of these) and why (i.e. give reasons for your answer). • What disclosures (if any) are required (either in the statements and/or notes). You need to explain your answer and identify the accounting standard/s that apply, where applicable.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
2) When undertaking a review of assets in early June 2022, it was noticed that there was no depreciation expense for office furniture. This office furniture had been purchased on 1 July 2014 for $60,000 and was to be
REQUIRED
Explain, in relation to the period ending 30 June 2022:
• How this should be accounted for (i.e. including what, if any, adjustments are required and the nature of these) and why (i.e. give reasons for your answer). • What disclosures (if any) are required (either in the statements and/or notes). You need to explain your answer and identify the accounting standard/s that apply, where applicable.
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