Biological assets, bearer plants, and agricultural produce are the three focal points of the scope of IAS 41. Briefly discuss and compare each.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
1. Biological assets, bearer plants, and agricultural produce are the three focal points of the scope of
IAS 41. Briefly discuss and compare each.
2. Dupont Corp. recently discontinued operations on one of its four branches. The branch is now
conducting a clearance sale. The fixed assets in the discontinued branch are now being offered for
sale, and a buyer has been identified. The sale can take place within a year.
Despite all this, the management insists on presenting all the fixed assets, including those that
belong to the disposal group, as PPE as it would give an impression of large manufacturing
capacity. They are not in favor of presenting any amount of revenues from discontinued
operations.
Explain to them why these assets are no longer PPE and should be separated as assets-held-for-
sale and why income on discontinued operation should be separated from continuing operation.
3. Apart from the benefits required by legislation, what benefit can a company expect from offering
additional post-employment benefits to its employees? Share your opinion.
4. Pierogi Corp is deciding on buying a property to expand its operation. The acquisition cannot
be afforded with the company’s current financial situation, and a highly onerous bank loan may be
required in order to make the purchase possible. Meanwhile, the property proposed another
option that will still allow the company to use the property. The owner is offering the property
for lease with a purchase option. In your opinion, which would be a better option?
5. Why do we need to differentiate lessor accounting for direct financing leases and sales-type leases?
6. Lease liability and right of use asset are accounts used by the lessee in a finance lease. Are the
components used in computing the right of use asset similar to those that make up
the lease liability? Explain your answer by citing any differences and similarities.
7. Differentiate and compare similarities of the two classifications of lessor accounting for finance
leases, direct financing, and sales-type leases. Explain with a short answer.
8. Taxes are a burden and an obligation, and people have a negative attitude towards their tax
liabilities. In an effort to convince these people that there is a good outcome from the taxes they
pay, can you mention a few positive things about paying taxes?
9. What is the effect of
expense? Explain briefly.
10. In correction of combined errors, you need to be careful with counterbalancing and non-
counterbalancing errors, to set a clear borderline between them, briefly differentiate the two.
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