Describe the different methods available for recording depreciation on plant assets. Recommend the approach that you feel would be most advantageous for your selected company and explain why.Discuss the process for reporting contingent liabilities in the financial statements. Provide two examples of contingent liabilities that you might expect to see on your selected company’s balance sheet

Introduction:- Depreciation is a non cash expenses. Depreciation is charged on fixed asset over a estimated useful life of the asset. It is recorded in the income statement.Explanations:- The following methods of depreciations as follows under:- Straight Line Depreciation Method. Diminishing Balance Method. Sum of Years' Digits Method. Double Declining Balance Method. Sinking Fund Method etc...Methods of depreciations:- i)Straight line depreciation :- Straight line depreciation is a common and simplest method of calculation depreciation.As per this method fixed asset is reduced as a depreciation over its useful life of asset.Formula= (Cost of equipment – salvage value ) / Useful life Example:- A plant having cost =$25000 salvage value =$0 and Useful life= 5 years. Depreciation will be 25000-0/5= $5000 per year for 5 years.ii)Double declining method:- This method is based on concept that asset is more productive in earlier years and it reduces as each it passing year. Formulae=Periodic depreciation expense = Beginning Book value * rate of depreciation Rate of depreciation= (100%/useful life of asset)*2 For example:- Now lets assume an asset having value $25000,useful life5 years an Depreciation rate =( 100/5)*2 = 40% Depreciation for year = 25000*40% =$10000 iii)Units of production method:- The asset under this method is depreciated on the basis of total hours used or total number of units to be produced using the assets over useful Life. Formulae=(No of units produced/life in no of units)*(cost- salvage value) Example:- machine cost=$25,000. unit to be produced= 50 million And no salvage value Units produced in 1st quarter 2 million Depreciation expense =(2/50)million * 25,000 =$1000 4)Sum of the year Digits depreciation:- It is accelerated method of depreciation Depreciation expense = (remaining life/ sum of years digit)*( cost - salvage value) For example:- Depreciation=$25000 Estimated life =5 years Salvage= 0. Depreciation base =5/15 x $25,000 =$8,325 1St year is 5/15 2nd year 4/15 3rd year 3/15 4th year 2/15 5th year 1/15Conclusion:- Straight-line method is commonly used method for calculating depreciation. Straight-line depreciation would be most advantageous for your selected company Because of simple to use, resulting in minimal mistakes. As per the Bartley by guidelines I am able to answer first question only... I hope helpful to you... If you are satisfied... Support me... Thank you...

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Describe the different methods available for recording depreciation on plant assets. Recommend the approach that you feel would be most advantageous for your selected company and explain why.
Discuss the process for reporting contingent liabilities in the financial statements. Provide two examples of contingent liabilities that you might expect to see on your selected company’s balance sheet

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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