Accounting for Long-Term Operational As ATC 6-4 Writing Assignment Impact of his

Question

Accounting for Long-Term Operational As ATC 6-4 Writing Assignment Impact of historical cost on asset presentation on the s)2 balance sheet Assume that you are examining the balance sheets of two companies and note the following information. Company A CompanyB $1,130,000 Equipment Accumulated Depreciation 730,000) $900,000 (500,000) $400,000 Book Value $ 400,000 Maxie Smith, a student who has had no accounting courses, remarks that Company A and Company B have the same amount of equipment. Required In a short paragraph, explain to Maxie that the two companies do not have equal amounts of equip- ment. You may want to include in your discussion comments regarding the possible age of each com- t, the impact of the historical cost concept on balance sheet information, and the impact of different depreciation methods on book value.

Explanation / Answer

Ans: The two company hasn't equal amount of asset as company A cost of asset is 11.30 lakhs where as company B cost of asset is Nine lakhs. The accumlated depreciation is not a reduction in cost of asset its just the provision for new asset whenthe actual asset is written off then this provision amount will be used for the fresh procurement. So the actual cost is. historical cost[cost that is capitalised on the procurement and installation of asset which is 11.30 lakhs in case of Company A and Nine lakhs in case of Company B.

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