Which of the following is an accounting issue regarding long-term assets? A) How the value of the asset is represented each period on the income statement. B) How to spread the cost of an asset over the asset’s useful life. C) How to record the cost of the asset in each accounting period. D) How to determine the life of the asset. What option would you pick?
They all seem correct… I would go with B
I’ll go with D… As ‘useful life’ is an accounting estimate completely under managements’ discretion… so the management could play around with it, manipulate it, and get away with it… it’s upto a good Analyst (which I am not, I am from software) to identify and justify such changes… Also have a loot at this… http://www.analystforum.com/phorums/read.php?11,622135 also let us know the correct answer? … Since the answer to this question is at Schweser’s mercy -Dinesh S
A) How the value of the asset is represented each period on the income statement. Value of an asset is not recorded on the Income statement. (unless recording value means Depreciation expense, but I think not). So this choice A is ruled out. B) How to spread the cost of an asset over the asset’s useful life. This is dependent on the Depreciation method used. Yes there are various possibilites - one method for the Financial statement, another for the Tax statement. C) How to record the cost of the asset in each accounting period. D) How to determine the life of the asset. Life of an asset are an accounting estimate. so this would rule out D. Personally, I do not think we RECORD cost of asset in each accounting period. So I would go with B.
I agree with you CP, it makes sense to rule out C. When facing 2 answers that can possibly be right, my rule is too always go with the more accurate one, and rule out the more ambiguous or awkward one since it’s always the BEST answer choice we gotta choose…
there are little clues in the answers that help determine the right answer cost is recorded only once, you buy/build something only once and cost is historical does not change so C incorrect A incorrect because the value of the asset shouldn’t be on the income statement D is more of an engineering/ specialist issue - how would an accountant know if an equipment is useful for 2 or 10 years.if managements decides they do it because they are good in their field not because they are good accountants using a depreciation method is an accounting issue everything was well shown in the previous answers
Dinesh, I would use your argument to back up “B” as the answer. The very fact that it is based on management discretion, makes it an important accounting issue for long term assets.
ppl the answer is B and the explanation is: An accounting issue regarding long-term assets is how to spread the asset’s cost over the useful life of the asset. Another issue would be how the value of the asset is represented each period on the balance sheet. but i still dont know why not D
determining the life of the asset is not an accounting principle. It is only an accounting estimate. In one year, life of a given asset could be estimated as say 10 years. and you could take depreciation based on a 10 year estimate for say 5 years. after that you could say that the machine has become obsolete, will not last the estimated 5 years left, say new remaining life is 2 years and take an extra depreciation expense over the last 2 years. Of the 4 choices given – only B was an accounting issue – which helped to determine the accounting principle – type of depreciation method.
thanx cpk got the point