accountingfreakblog.files.wordpress.com€¦ · Web viewUpon looking at my firm’s annual...
Transcript of accountingfreakblog.files.wordpress.com€¦ · Web viewUpon looking at my firm’s annual...
Madison Barnes (S0200872)
ASSIGNMENT STEPS 7 - 11ACCT11081: Introductory Financial Accounting
DUE: 11.00am Tuesday, 22nd May 2018
Step 7 – Involves you exploring the inventories practises of your firm (KCQs).
Figures? Are they small or big numbers? What does this mean?
Upon looking at my firm’s annual reports (“Austal”) I noticed that their figures were in thou-
sands of dollars (‘000). Their inventory figures I thought seemed quite large being $170,422
for 2017, $108,974 for 2016, $339,703 for 2015 & $328,142 for 2014. Other than property,
plant and equipment, their inventory was the second biggest figure in their assets. This was
quite alarming to me. Questions I ask myself are whether Austal are keeping too much in-
ventory at hand? Do they have big expensive items in stock? Being a shipbuilder company, I
would imagine their inventory items could be costly items for making the vessels. Inventor-
ies (although an asset) can be expensive for a firm to keep, maintain and store. They must be
worried about theft and deterioration by keeping so much inventory. I am hoping that Austal
plan to sell their inventory within 12 months. It does mention in their annual reports that
“No inventories are expected to be sold more than 12 months after balance sheet date” but
this makes me uncertain because of the number of inventories they are keeping on hand.
Having such a large amount of inventory items means the firm will have to sell more to im-
prove turnover.
What does your firm disclose about its inventories? Have the inventory practises changed over the years? If so, Why?
In one of Austal’s notes in the financial report it gives me some insight as to why they have
so many inventories on hand. Majority of their inventories for 2017 are allocated to work in
progress, $168,358 million dollars to be exact and $2,064 million dollars to other inventory.
From what I gather this amount of $168,358 million dollars is made up from construction
and support revenue recognised to date ($8,010,526 million) less progress payments re-
ceived ($7,842,168 million). Because vessels are large and expensive, they may take a while
to be manufactured. Questions I have is how long does it take to manufacture a vessel? Con-
cerns I have would be the amount of inventories on hand and not receiving money from the
customers? I discovered that Austal’s customers do actually contribute progress payments
towards services and vessels on a percentage of completion basis. Percentage of completion
is determined by reference to actual cost to date as a proportion of estimated total contract
works. This reminds me of where I work at a local floorcoverings business, we may have a
big project that will take us a few months to complete (not as big as building a vessel) and
our client will pay us progressively as we complete the job. Say when we complete 50% of
the work and 75% of the work we will get a percentage of the work to be made payable to
us rather than us taking months to complete the work and getting a lump sum of money.
This helps us to cover for the expenses in that period for inventories (or carpet as such). We
also only provide these services to pre-approved clients with a net 30 day account where we
have carried out credit reference checks (another thing I personally do at work). I did notice
with Austal they also had a reference to “credit risk” saying that the group only trades with
recognised, creditworthy third parties. And exactly like my work they expect progress pay-
ments from the client to cover the cost of the construction and vessel sales contracts are
structured to ensure that the group will be paid on delivery of the vessel. This may be by
either making progress payments or my obtaining a letter from a credible bank to cover pay-
ment of the contract. As you can see, it would appear that the inventory listed on the annual
reports are actually “accounted for”. Austal are relying on that money to be paid in the near
future and I feel like it does not look so bad now. I also checked the annual reports for all
years and the inventory practises have remained the same over the last few years.
What method of inventories system does it use (weighted average, FIFO, LIFO, specific identification)? Do they use perpetual or periodic system?
Upon looking at my firm’s annual reports for what type of inventory system they use, the
only comment I found was stating that “stock and finished goods are valued at the lower of
cost and net realisable value” which I expected to read on there. It was also mentioned that
the cost of stock is determined on the weighted average cost basis. They did not list whether
they use perpetual or periodic system to count inventory. I would imagine both periodic and
perpetual systems would work for Austal.
What are some issues that your firm may be facing with it’s inventory management? Why?
Some issues I noticed with Austal’s inventory management system is the amount of inventor-
ies they keep at hand. Even though they are technically receiving “progress payments” for
these inventories, I do wonder how quickly they build “ships” as 12 months does not seem
like enough time to complete several vessels. I looked over at Austal’s income statement and
noticed their net profit for year ended 30 June, 2017 was $15,350 million dollars. In consid-
eration to this profit, they had 11.1 times the amount of profit they made for that year sit-
ting in their warehouse as inventory (or work in progress). It just doesn’t seem right to me. If
the clients are paying progressively for their vessels than shouldn’t this average out to be a
lot more profit than that? The firm’s gross profit margin is 0.91 (Cost of sales / Revenue).
More simply, for every dollar of revenue it’s costing the firm almost 91 cents, which does not
even include other expenses such as administration cost, marketing expenses and finance
cost. To me, it seems as though Austal is facing some problems in the area of the cost of
goods sold. How can they expect to make a profit when it is costing them minimum $0.91
cents per dollar to produce revenue?
Are there areas your firm could improve it’s inventories management system? How did you identify this?
I am sure there is a way to improve Austal’s inventory management system but I am not sure
how. I think because of what services they provide, it makes inventories very difficult to
monitor. Unless they are recording every single piece of inventory they use when completing
a vessel. Another thing they could do is perpetually record parts that they use and utilise this
information to bill clients as they progressively complete vessels. The quicker staff work to
complete the vessels too, the quicker Austal will receive their “earned revenue”.
Have you had any experience with inventories, explain and describe these experiences?
Yes, I have had some experience with inventories. I work at a local floorcoverings store in
Rockhampton as an Administration Officer and it is actually my responsibility to control and
monitor the stock books we hold for the carpet and vinyl. The only “stock” we hold is the
lower quality carpet and vinyl which people usually want straight away for rental properties.
The stock carpet and vinyl inventory system we use would be specific identification method
as we record all rolls that come in store into a register to record it’s price, size, colour,
quantity, roll number and batch number. It is from this register that we update periodically
what stock we use for our customers. I would usually update this every month on a regular
basis (as it is an older system used created in excel). Every end of financial year we would
then carry out a stocktake and update the electronic system to reflect what we have in the
warehouse (periodic system on inventory management).
Most carpet, vinyl, tiles and timber flooring for our customers get specifically ordered in for
each individual customer. From what I gather from observing the salespeople, we would use
the specific identification system to allocate cost to these items. Our systems at work are
VERY outdated and old school as I work with much older staff who are set in their ways and
do not like change. So, when a customer comes in store we purchase carpet or vinyl at the
price agreed to by the group. It is that price we take into consideration when providing a
price to the customer, we add on the cost of installation, underlay, floor prep and movement
of furniture that they may need and provide them with a price. You see this is why I said that
it feels like we use the specific identification method of costing our products.
Step 8 – Involves exposing you to a commonly used accounting software. In this step, you will learn how to use MYOB AccountRight.
As you will see below from the screen shots taken from MYOB AccountRight accounting pro-
gram, I have completed the training and setup for my firm. I initially set this file up as my
firm “Austal” from the beginning so that I can enter my transactions for step 9 from this set
up file instead of opening a new file however, I ended up playing around with the opening
balances to see how this is done which was beneficial (but not entering them all) so I will
create a new file for step 9 with only the transaction that I enter for my firm. I use MYOB at
work where I work as in Administration and Accounts for a floorcoverings business so I found
this process relatively easy. I still sat through the set up and training videos even though I
knew how to set everything up. Although there were a few things that I would have never
had to do such as setting up bank balances and initial bank reconciliation when you set up a
new file so it was good to see how company files are set up for a firms transactions. As you
will see from my screen shots below I screen shot as much as I could throughout the set-up
stage of this assignment so you could see what I actually did. I changed the default credit
terms to 30 days after EOM, automatically print sales (invoices) when entered, in the secur-
ity tab I selected that transactions cannot be changed (they must be reversed) and I also
entered hypothetical customers, suppliers and employees (although we probably will not
use employees for this unit). I did not set up initial bank reconciliation from my firms bank
account as I do not have access to my firms’ bank account and this would be impossible to
set up within this unit. I also, did not enter all the opening balances for my firm. I did how-
ever, play around with the set-up of the opening balances of my firm to familiarise myself
with this process.
Figure 1 - Trading Terms set up
Figure 2 - Print Invoices set up
Figure 3 - Security Preferences
Figure 4 - Customer card files
Figure 5 - Supplier card files
Figure 6 - Employee card files
I also set up my firms account list as per the balance sheet by changing the assets, liabilities
and equity accounts. I had to change some names, delete some accounts and enter the
opening balances of each individual account. I found this process relatively easy as I use
MYOB at work and knew how to access the accounts list and make changes. I have never had
to set up firms accounts before so this was a good process for me to do as it taught me how
to set up the opening balances of a firm in an accounting software program. As you will see
below from the screen shots where I have changed all the accounts to reflect what was in
my balance sheet for my firm ‘Austal’. It will match exactly as noted in the financial reports
and was good to see this reflected in MYOB. You will see that the total assets from my firms
balance sheet ($960,001,000.00) will match exactly as what is entered into my MYOB
accountRight file. You will also notice that the total liabilities from my firms balance sheet
($503,087,000.00) will match exactly to what is entered into my MYOB AccountRight file. See
below.
Figure 7 - Accounts list in MYOB
Figure 8 - Accounts list in MYOB
This is the screen shot of my last transaction of the training video where we print the recorded sales.
MYOB Online Training Skills test
Results from completing the Ezylearn online MYOB training and skills test was 13/13 for me. This was a fairly easy process for me and only took about 5-10min to complete.
Step 9 – Involves you creating a set of business transactions for your company, recording these in MYOB and producing a set of financial statements from MYOB.
This step seems a little deceiving at first as it seems so easy! However, this means to enter a
set of business transactions for our firm, we first need to set up the firms account list, items
and services they sell, customers and suppliers just as we have learnt in the set-up and
training videos. Setting up a new company file with this information was the first thing I had
to do. I thought it would be easier to enter all this information initially so then I could just
enter my transactions and all the accounts would be linked. I thought about what type of
transactions I would have for my firm “Austal” of which are a ship building company who
also offer training, sell parts and boats. I then edited my accounts list to reflect my firms
hypothetical assets, liabilities, expenses, income and items. Examples of the income, cost of
sales and expense accounts will be shown in a table below. I have created three sorts of
income accounts (sales, service and training) so all purchases and sales can fall under these
few accounts. The asset & liability accounts are pretty simple so have not listed these out.
Income Cost of Sales Expenses
4-1000 Sales 5-1000 Parts 6-1000 Wages & Salaries
4-2000 Service 5-2000 Service 6-2000 Other Payroll Expenses
4-3000 Training 5-3000 Cost of Sales 6-3000 Electricity
5-4000 Consumables 6-4000 General Expenses
5-5000 Plant & Equipment 6-5000 Fuel Expenses
5-6000 Direct Labour 6-6000 Maintenance Expenses
5-7000 Freight 6-7000 Advertising
5-8000 Purchase Returns 6-8000 Freight
5-9000 Packaging 6-9000 Parts
My Transactions
Transaction 1
1/08/2017 - Purchased $1500 (Incl GST) worth of fuel for the vessels from fuel centre on a
COD account. Paid via bank transfer. Had to Enter ABN number as amount was over $1000.
Transaction 2
28/07/2017 – Paid fortnightly wages for (4) staff totalling $8,846.15 Including $840.38 PAYG
Tax Liability
Transaction 3
15/08/2017 – Entered invoice for advertising cost ($1000 Incl GST) to sea advertising for the
month of July 2017 on a 30 day account.
Transactions 4
18/08/2017 – Purchased boat parts (Anchors and decking) from Boat supplies on a
30 day account to the value of $10,000 Incl GST.
Transaction 5
31/08/2017 – Enter invoice for electricity charges from Origin Energy for June-August
quarter to the value of $5000 Incl GST.
Transaction 6
20/08/2017 – Returned faulty anchors to boat supplies ($3,000 Incl GST) on 30 day account.
Credit note in MYOB.
Transaction 7
5/08/2017 – Sold one complete vessel to Royal Navy of Oman for $20,000,000 (Incl GST) on
30 day account.
Transaction 8
6/08/2017 – Supplied contract maintenance of vessels for U.S. Navy on 30 day account to
the amount of $2,000.
Transaction 9
25/08/2017 - Provided 3-day crew training to Condor Ferries on a COD account to the value
of $30,000 Incl GST.
Transaction 10
27/08/2017 – Received payment by direct deposit from Condor Ferries for crew Training
25/08/2017 – 27/08/2017.
Figure 9 - All Journals from MYOB
Austal Step 9
All Journals1/08/2017 To 31/08/2017
ID No.Account
#Account
Name Debit Credit
PJ 1/08/2017 Purchase; Fuel Centre 00000001 2-1000 Trade
Creditors $1,500.00
00000001 6-5000 Fuel Ex-penses
$1,363.64
00000001 2-4000 GST Paid $136.36 CD 1/08/2017 Fuel Centre 3254 Fuel
Road Bardot QLD 2528
528658 1-1000 Cheque Account
$1,500.00
528658 2-1000 Trade Creditors
$1,500.00
SJ 5/08/2017 Sale; Royal Navy of
Oman
00000007 1-5000 Trade Debtors
$20,000,000.00
00000007 4-1000 Sales $18,181,818.18 00000007 2-3000 GST Col-
lected $1,818,181.82
SJ 6/08/2017 Sale; U.S. Navy 00000008 1-5000 Trade
Debtors$2,000.00
00000008 4-2000 Service $1,818.18 00000008 2-3000 GST Col-
lected $181.82
PJ 15/08/201
7Purchase; Sea Advert-ising
00000002 2-1000 Trade Creditors
$1,000.00
00000002 6-7000 Advertising $909.09 00000002 2-4000 GST Paid $90.91 PJ 18/08/201
7Purchase; Boat Sup-plies
00000003 2-1000 Trade Creditors
$10,000.00
00000003 6-9000 Parts $9,090.91 00000003 2-4000 GST Paid $909.09 PJ 20/08/201
7Purchase; Boat Sup-plies
CN:5 2-1000 Trade Creditors
$3,000.00
CN:5 6-9000 Parts $2,727.27 CN:5 2-4000 GST Paid $272.73 SJ 25/08/201
7Sale; Condor Ferries
00000009 1-5000 Trade Debtors
$30,000.00
00000009 4-3000 Training $27,272.73 00000009 2-3000 GST Col-
lected $2,727.27
CR 25/08/201
7Payment; Condor Fer-ries
589654 1-1000 Cheque Account
$30,000.00
589654 1-5000 Trade Debtors
$30,000.00
CD 28/08/201
7Midgley, Cameron
528659 1-1000 Cheque Account
$1,835.69
528659 6-1000 Wages & Salaries Expenses
$2,307.69
528659 2-2000 Other Payroll Li-abilities
$691.23
528659 6-2000 Other Payroll Ex-penses
$219.23
CD 28/08/201
7Ridge, Joanne
528660 1-1000 Cheque Account
$1,711.38
528660 6-1000 Wages & Salaries Expenses
$2,115.38
528660 2-2000 Other Payroll Li-abilities
$604.96
528660 6-2000 Other Payroll Ex-penses
$200.96
CD 28/08/201
7Smith, John
528661 1-1000 Cheque Account
$2,086.31
528661 6-1000 Wages & Salaries Expenses
$2,692.31
528661 2-2000 Other Payroll Li-abilities
$861.77
528661 6-2000 Other Payroll Ex-penses
$255.77
CD 28/08/201
7Walker, Lukan
528662 1-1000 Cheque Account
$1,458.77
528662 6-1000 Wages & Salaries Expenses
$1,730.77
528662 2-2000 Other Payroll Li-abilities
$436.42
528662 6-2000 Other Payroll Ex-penses
$164.42
PJ 31/08/201
7Purchase; Origin En-ergy Electricity
00000004 2-1000 Trade Creditors
$5,000.00
00000004 6-3000 Electricity $4,545.45 00000004 2-4000 GST Paid $454.55 Grand
Total:$20,093,686.53 $20,093,686.53
Figure 10 - Exported into excel (All Journals)
Figure 12 - Profit and Loss (MYOB)
I have selected a wide variety of transactions for my firm which include sales, purchases,
returns, wages, services and training. I have created 10 hypothetical transactions for my firm
including payroll, purchasing of parts for the vessels we sell, fuel purchases, advertising and
electricity cost, return of faulty anchors to boat supplies, the sale of one complete vessel to
the Royal Navy of Oman, service maintenance on contract for the U.S. Navy and 3-day crew
training for Condor Ferries on a COD account. All transactions were for the month of August
2017. I will outline my understanding of each of the above financial reports exported from
MYOB. Starting with the profit and loss report where the balance is $18,188,040.74 of
operating profit. This tells me that my firm “Austal” are operating at a profit and it is all from
operating operations. This profit is mainly made up of the large sum of money received from
the Royal Navy of Oman for a complete vessel totalling $20,000,000.00 plus other services
and training income. Total Expenses are $22,868.35 are consist of wages, PAYG tax liability,
electricity, fuel expenses, advertising and the purchase of some parts. This profit and loss
statement can be very deceiving as it does not account for cash that is yet to be received on
30 day accounts from the customers, otherwise known as accrual based accounting. We
entrust that our Royal Navy of Oman customer who purchased the complete vessel will be
paying this money to us in the next 30 days. We have not yet received this money in our
bank and therefore this is how the profit and loss statement is not a true reflection of
financial position. All the profit and loss statement tells me is if my firm “austal” for the
month of August 2017 earnt more than they spent. If the Royal Navy of Oman did not make
such a large purchase this month, Austal would not have made a profit.
Figure 11 - Balance Sheet (MYOB)
The balance sheet tells me that Austal has $21,407.85 in the bank and $20,002,000.00
coming in from the customers (trade debtors). The Liabilities ($1,835,367.11) do not seem
like a lot compared to the Assets. In fact, the current ratio for august (assets/liabilities) is
10.90%. The Current ratio is a liquidity ratio which determines the firm’s ability to pay short-
term and long-term obligations using their assets. This means that Austal has 10 times more
current assets than liabilities. Current assets such as cash can easily be converted into cash
in the short term and means that Austal will not have to sell off long-term revenue
generating assets to pay for current liabilities. Obviously having more assets than liabilities is
far more beneficial for a firm. You can also see that the cheque account on the balance sheet
matches the movement to what is shown on the net cash flow statement at the end of the
period.
The statement of cash flow is the real truth for firms as this is the cash that the firm operates
with. With accrual accounting (accounting for sales when they occur and not when cash
received) this can alter the view on the financial position of the firm. If we look at my firm’s
statement of cash flow, it tells me that the net cash flow is only $21,407.85. Compared to
the profit and loss statement which is said to have made $18,188,040.74, that is a huge
difference. I found it interesting how all three financial reports are interrelated but
somewhat diverse individually. The income statement describes how the assets and
liabilities were used in the stated accounting period. The cash flow statement explains cash
inflows and outflows, and it will ultimately reveal the amount of cash the company has on
hand, which is also reported in the balance sheet. By themselves, each financial statement
only provides a portion of the story of a company's financial condition but together, they
provide a more complete picture.
Figure 13 - Statement of Cash Flow (MYOB)
Step 10 – Involves you describing your firm’s depreciation policies and creating
depreciation journal entries based on your firm’s financial statements.
My firm Austal are the largest aluminium ship building company in the world who design
and construct ships and commercial vessels for leading operators. They have gained a
desirable reputation for advanced shipbuilding using technologies and construction
processes. Austal have several shipyards located in the United States of America, Australia
and the Philippines. They also have service centres located around the world and due to the
complexity of these modern platforms, Austal can provide tailored training packages for
operating crews, maintenance crews and specialised technical training relevant to onboard
information systems and monitoring programs. They offer marine, government and
commercial operators the best quality of ships, support & systems. Upon looking at their
balance sheet I noticed the property, plant & equipment figures seemed quite high. For 2017
they had $500,304 million dollars’ worth of property, plant and equipment on hand (2016;
$490,798 million, 2015; $442,522 million and 2014; $366,500 million). My justification for
this would be the type of business they have and the quantity of locations. Being one of the
largest ship building company’s in the world, they would have large quantities of property,
plant & equipment. With numerous locations around the world and machinery and
equipment at each of these locations, I am sure the figures have added up quickly due to
this. Another thing I noticed in my firm’s profit and loss statement was in note 5 relating to
“other income and expenses” under gross profit. The amount on the profit & loss was
$2,356 thousand but when I look at note 5, for the year ended 30 June 2017, it actually has
an inclusive negative amount of $379 thousand for the write down of assets held for sale
and $23 thousand for the loss on disposal of property, plant & equipment as well as $3.486
million for the sale of scrap materials. To me this is my firm writing off some assets and
selling them within their firm manipulating the figures of their profit and loss statements.
See below.
Austal’s Non-current assets such as property, plant, equipment, intangible assets and good-
will are all reviewed on an annual basis in accordance with the Group’s accounting policies,
to determine whether there is an impairment indicator. The estimation of the useful lives of
assets has been based on historical experience and the condition of the assets is assessed at
least once per year and considered against the remaining useful life. Adjustments to useful
life are made when considered necessary. Depreciation is calculated on a straight-line or di-
minishing value basis over the estimated useful life of the asset. From what I could see, the
depreciation for Austal has not changed over the 4 years I checked.
The following useful lives have been adopted for Austal as follows:
Buildings – 20 to 40 years
Plant and equipment – 2 to 10 years
Leasehold improvements – Lease term
The assets’ residual values, useful lives and amortisation methods are reviewed, and adjus-
ted at the end of each financial year if appropriate.
The depreciation method that Austal uses was a little unclear. They mention in the annual
reports that depreciation is calculated on a straight-line or diminishing value basis over the
estimated useful life of the asset. The depreciation was not clearly stated on Austal’s bal-
ance sheets, I had to do a little bit of research and actually found the depreciation amounts
discussed in Note 18 of the annual reports. The amount of depreciation on the balance
sheets are quite significant in value and make up nearly 20% of the firms non-current assets.
For year ended 30 June 2017, the depreciation value makes up 17.4% of the total non-cur-
rent assets, 19.08% for 2016, 19.45% for 2015 & 19.85% depreciation for year 2014. Austal
would have large pieces of machinery and manufacturing items to assist in building the ves-
sels and therefore this is why I believe their property, plant and equipment items depreciate
a lot in value and by volume each year.
Depreciation is an allocation of expected decline in value of an asset over it’s useful life by
the entity. I have learnt that depreciation is quite a complex part of a firm’s financial reports.
There are many things to consider when dealing with depreciation such as the cost of the as-
set, useful life, residual value, depreciable amount, goodwill, property, plant & equipment,
intangible assets, impairment and amortisation. These key concepts will almost certainly be
included in a firm’s financial reports and I felt like I had to first understand these terms be-
fore I could analyse my firm’s reports. The initial cost of an asset should include taxes, install-
ation, transport, training of staff to be trained how to use the asset and an estimate of re-
quired cost or re-location when sold. Calculation of depreciation is then based on the GST
exclusive amount. Goodwill and intangible assets are a tricky one because they are very sim-
ilar. They both are classes as an asset for the firm which will provide future economic bene-
fits however, they have no physical presence. The difference between the two is goodwill
cannot be separated from the entity (such as customer relations, favourable locations, qual-
ity management and manufacturer efficiency) and intangible assets must be identifiable and
have a separate identity from the entity and be able to be sold (such as computer software,
patents, trademarks and copyrights).
I know my firm “Austal” has both goodwill & intangible assets. It is stated that both goodwill
and intangible assets are initially measured at cost and subsequently carried at cost less any
accumulated amortisation and any accumulated impairment losses. Impairment testing is
conducted annually and computer software is amortised on a straight-line basis over the
useful life of the asset (2 to 5 years). Amortisation amounts for the year 2017 was $1,143
thousand, 2016 was $1,438 thousand, 2015 was $12,593 thousand and 2014 was $10,185
thousand. As you will notice they amortisation of the intangible assets have dramatically in-
creased over the past 2 years. Goodwill on Austal’s balance sheet seems to be a fixed
amount that does not change over the last 4 years statements I checked ($6,463 thousand)
and their intangible assets include computer software which accumulates in value each use-
ful life meaning they amortise intangible assets annually (such as the computer software)
and keep a fixed amount for goodwill in their financial reports. I found it interesting how the
goodwill for Austal did not change over the years, it was as if they selected a fixed amount to
sit on the financial reports each year without review. My thoughts are that this amount
would have to change over time (in say 10 years) after taking into account their revenue and
expenses for the year.
Depreciation Journals
Refer-ence Date Accounts DR CR
#1 30/06/2017 Depreciation and amortisation Expense xxx Intangible assets accumulated amortisation xxx
(Record amortisation for the non-current intangible assets)
#2 30/06/2017 Depreciation Expenses xxx
Accumulated depreciation - plant and equipment xxx
(Record depreciation for plant and equip-ment)
#3 30/06/2017 Depreciation Expenses xxx
Accumulated depreciation - Freehold land and buildings xxx
(Record depreciation for freehold land and buildings)
These transactions above are simply the recording of depreciation within my firm. They re-
cord the increase in depreciation and amortisation expense accounts in the income state-
ment whilst increasing the accumulated depreciation contra asset account on the balance
sheet. There are areas in which it would be possible to manipulate depreciation entries
within a firm. It is possible to revaluate or dispose of property, plant & equipment when no
further economic benefits are expected from it’s use (Like my firm). If there is a grey area to
make up for some assets compared to liabilities in the balance sheet, some companies will
also increase their goodwill figures to reflect this and make up for the grey areas. It would
also be possible to deduct less depreciation on assets and therefore would appear to be
more revenue in the income statement. You could also increase the life span of the assets
so that you pay less depreciation over the years.
.