Chapter 3, Problem 3.1TIATC

To determine

1)

Depreciation on Assets

Depreciation expenses occur when wear and tear of assets take place. The amount of depreciation over the period of the lifetime of the asset is recorded in the accumulated depreciation account.

While calculating Depreciation expense for the year, there are 2 generally accepted methods; Straight Line Depreciation, where the depreciation is distributed equally over the useful life of the asset and Written Down Value method, where a fixed percentage of the opening book value of the asset is depreciated every year.

Depreciation expense on 31 December in the first and second year of use.

To determine

2)

Book Value of the Depreciable Assets

Depreciation expenses occur when wear and tear of assets take place. The amount of depreciation over the period of the lifetime of the asset is recorded in the accumulated depreciation account.

Book value of the depreciable assets is the net value of the asset after charging depreciation expense for the years the asset has been put to use.

Book value of Asset in the first and second year of use.

To determine

3)

Impact of adjusting entries on Financial Statements

Adjusting entries are passed in the books of accounts at the end of the year to record certain transactions that are required to be journalized in order to comply with applicable regulatory and legal framework.

Examples of adjusting entries are charging depreciation expenses on depreciable assets and amortization of intangible assets over their respective useful lives.

Impact of failure to record adjusting entries