1.A company may adopt an alternative accounting principle, and such accounting c
ID: 2593477 • Letter: 1
Question
1.A company may adopt an alternative accounting principle, and such accounting changes relate to changes from one acceptable method to another. An example that a company may conclude that it wishes to adopt FIFO instead of average cost. Give an example of an accounting change that is reasonable within the business/industry.
2. For the business and/or industry that you have considered in the previous discussions, give an example of a business component for which you might discontinue operations. What are the important accounting processes for such a situation?
Explanation / Answer
1. An example of an accounting change that is reasonable within the business/industry are as follows:
Depreciation:
There are four main method of calculating the annual depreciation expense.
-Straight Line Depreciation
Formula is = Depreciable amount / Estimated Useful Life
- Double Declining Balance:
Double Decling Rate x Book value of the asset at the beginning of the year.
A Company Can change its method from Double Declining balance to Straight Line Depreciation that is reasonable within the industry.
2. Example of a business component for which you might discontinue operations. What are the important accounting processes for such a situation?
Answe: Discountinuing operation is such a situation where the organisation is incurring negative profit or losses. In Such a situation . Analyze the income statement and ensure that Contribution Margin is Positive .
Contribution Margin : Sales - Variable Costs
Analyze the Contribution Margin & the Fixed Costs. If the contribution is positive then there is no need to eliminate or discontinue the operations.
If the Contribution Margin is Negative, Hence its assured that company isn't able to meet its Variable cost with the targeted sales. in this situation the company should hault its operations or think about discountinuing the operations.
Analysis of Fixed Cost is important in continuing or discontinuing the operations .
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