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Finance & Accounting
Pages 4 (1004 words)
PART A Machinery A Accounting in the Balance Sheet This machinery should be grouped under Property Plant and Equipment (PP&E) category of the Balance Sheet and should be reported at cost net of accumulated depreciation, which is “the total amount of depreciation recorded against the assets over their useful life” (Ernst &Young, 2009, p.
The essence of this system of accounting for Non Current assets is that; eventually, these assets have to be replaced and hence the best estimate for the company to use as the replacement cost of wearing away is depreciation. Accounting in the Income Statement Although IFRS has clearly spelt out that costs should be “capitalized as part of the cost of the asset if future economic benefits are probable and can be reliably measured” (Ernst &Young, 2009, p. 7), the model has not clearly specified clearly, how the units of account, used in long-term assets, should be determined. As such, the determination of a unit of account is based on the discretion of the management, who consider both the asset’s materiality and the intended use in order to fix the appropriate units. In respective of this view, the ‘minor spare parts’ should be considered less material and, therefore, treated as expenses under the Income Statement. The entire ? 5,700 should be accounted for under this category. The other two categories of costs, including service contract (W4) and depreciation (W2), should be accounted for in the Income Statement since they are expensed. ...
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