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
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
Chapter5: Managing Checking And Savings Accounts
Section: Chapter Questions
Problem 7FPC
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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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