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

Name: Suppose you are an accountant in an accounting firm, called Small Busi
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Description: 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 S

Depreciation is an expense which shows the decrease in amount of assets. Depreciation is shown in…

Answered: Entertainment Ltd rents out movies over…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 sells 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 IAS 16 in your response.

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