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Traveler acquired a new factory on 1 December 2010.The cost of the factory was 50m and it has a residual value of 2m.The factory has a flat roof,which needs replacing every 5 years.The cost of the roof was 5m.The useful economic life of the factory is 25 years.No depreciation has been charged for the year.Traveler wishes to account for the factory and roof as a single asset and depreciate the whole factory over its economic life.Traveler uses straight line depreciation.
I understood the treatment of the whole adjustment but my problem is , in answer the cost of an asset has not been added whereas its not indicated anywherw in the adjustment that whether traveler has accounted for it or not?
If suppose i get into this type of confusion then is it right to write an assumption (like in this case , i assume that factory has not been added in the financial statements) and continue ?will marks be granted on it ?
It’s most unlikely that the accountant (even if only part qualified!) will have forgotten to include a factory or even a factory roof!
Besides, it’s impossible to omit! It must have been paid for and entered into the accounting records
If I were you I would shy away from assuming that the production facility has been forgotten.
No, it’s an unreasonable assumption and will gain you no marks
It’s as silly as making the assumption that the parent of a group of companies “intends to sell the subsidiaries but the examiner has forgotten to tell you”!
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