AA Chapter 22 Questions
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Sorry I did not understand the answer to Q2.
I checked the review answer as well.
Can you please elaborate – especially between the tracing of requisition form to purchase invoice and the tracing of asset to purchase invoice.
Please elaborate generously…the background, logic, etc.
@Asif110 – these spaces are for comments rather than questions. Please use the ask the tutor forum for questions – and please be specific – what is it that you do not understand? See page 101 re direction of testing for existence – completeness is the opposite direction.
Sir, in lectures section you say Ask in tutor forum. This is practice questions, and I saw you were answering to everyone even in this page. I did not understand why one tracing method is effective while the other is not. Please elaborate generously.
Yes I answered two years ago when I was relatively new to OT – I was reminded that I should answer technical queries on the ask the tutor forum – not here.
Question 2
Tracing from asset account to invoices,,
Doesnt it give indication to completeness?
How is it become wrong
Because the “direction” is wrong – for completeness of additions you need to trace invoices/payments in respect of capital items to asset register/G/L a/cs (not vice versa).
For 4th Q, if the closing balance means cost and residual value is zero as well, wouldn’t it be the Straight Line Method?
Slightly confused over this one.
Closing balance in (1) means total cost at the end of the year for a class of assets and closing balance in (2) means cost less accumulated depreciation (i.e. carrying amount) – clearly before the current year’s depreciation (as that is to be calculated).
Consider if only two assets each costing $1,000 and depreciation rate 25% – you would calculate, assuming no residual value, depreciation = 2 x $1,000 x 25% = $500. But if either or both of those assets were already 4 years old that is wrong as there should be no depreciation once an asset is further written down.
Consider now two assets costing $1,000 each and depreciation rate 25% on reducing balance basis. Suppose one was bought 2 years ago – so its carrying amount before the current year’s depreciation is $562.5. Suppose the other was bought during the year – so its carrying amount is $1,000 before the current year’s depreciation is $1,000. I put it to you that depreciation for the current year can be calculated as $1,562.5 x 25% = $391.