7. Savvy Sisters, a high-end furniture production company, has purchased a new p

Question

7. Savvy Sisters, a high-end furniture production company, has purchased a new plant and has asked your Ovur what period should our new plant be depreciated? The plant's estimated useful life is 40 years, Using a gidance sundwich,respond to this question. That is, introduce the issueen gudn guidance applies to the issue in your own words. how the t Savy Sister has also asked you at what point the company shoud amy Sisers has also asked you at what point the company shouldecrde tiat has been earned by employees but not yet taken. Using a guidance sandwich, respond assumptions are required to respond, describe any assumptions you made. te 8. Sav l af onut midance not considered

Explanation / Answer

Answer to Question No 7:

The company has purchased a plant. The plant shall be available for use for a period of 40 years.

As per accounting Concepts, a fixed asset is required to be depreciated over its useful life.

The concept is based upon the logic that the asset must be part of the balance sheet / financial statements of the company till it is expected to contribute in the operations of the company or till it is in use by the company & it must also be written off from the balance sheet / financial statement when the useful period of asset is over.

As such, the asset must be depreciated over entire useful period of 40 years   

Answer to Question No 8

Employee Vacation time is a liability which may arise in future. As per accounting principles all liabilities needs to be accounted for & as such, Employee vacation time that has been earned but not yet taken needs to form part of liabilities side in the balance sheet.

The liability should be calculated at the end of each accounting period.

The liability needs to be calculated for each employee as under:

(Total vacations (in days) which can be availed – Actual vacations (in days) availed) * Employees daily wage rate’

the employee daily wage rate must be the last drawn wage rate

Assumption: All vacations of the employee, which are not availed by him during the period are carried forward to next accounting period.

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