Recently, Nai Su Ltd. experienced a strike that affected a number of its operating plants. The controller of this company indicated that it was not appropriate to report depreciation expense during this period because the equipment did not depreciate and an improper matching of costs and revenues would result. She based her position on the following points. 1. It is inappropriate to charge the period with costs for which there are no related revenues arising from production. 2. The basic factor of depreciation in this instance is wear and tear, and because equipment was idle, no wear and tear occurred. Comment on the appropriateness of the controller’s comments.
Recently, Nai Su Ltd. experienced a strike that affected a number of its operating plants. The controller of this company indicated that it was not appropriate to report depreciation expense during this period because the equipment did not depreciate and an improper matching of costs and revenues would result. She based her position on the following points. 1. It is inappropriate to charge the period with costs for which there are no related revenues arising from production. 2. The basic factor of depreciation in this instance is wear and tear, and because equipment was idle, no wear and tear occurred. Comment on the appropriateness of the controller’s comments.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Recently, Nai Su Ltd. experienced a strike that affected a number of its operating plants. The controller of this company indicated that it was not appropriate to report
1. It is inappropriate to charge the period with costs for which there are no related revenues arising from production.
2. The basic factor of depreciation in this instance is wear and tear, and because equipment was idle, no wear and tear occurred.
Comment on the appropriateness of the controller’s comments.
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