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Properties, plant, and equipment in accounting theory - Essay Example

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The cost of the equipment to the company is the cost at which they were purchased and depreciation gain on the equipment (Bagley & Harp, 2012). The offset accounts will therefore be credit in the bank and depreciation ledger…
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Properties, plant, and equipment in accounting theory
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"Properties, plant, and equipment in accounting theory"

Download file to see previous pages 2) Group costing (recording the cost as 800,000 for all the equipment together) affects the costing of the equipment in two ways. First, it is challenging to depreciate the items because they have different depreciation rates (Liapis & Christodoulopoulou, 2011). However, this risk may be eliminated in case their depreciation rate is the same. Second, it creates a reporting and cost allocation challenge, as the cost accountant cannot allocate costs effectively with group costing. Operational costs on the assets become hard to allocate. However, costing the items independently (single costing) will facilitate reporting because some of the equipment should be capitalized (fixed assets) while some would be expensed (inventory).
3) Group costing reduces the profit of the business. First, it increases the depreciation expense, which has a negative effect on the profit of the business. Group costing also eliminates gain on sale of the expenses assets (Herrmann, Thomas & Saudagaran, 2011). Introduction of unwarranted depreciation also affects the value of the assets as it lowers the item values in the end. However, single costing does not affect the value of the assets and maintains the profit of the business high, as the gains on sale are included in sales while the depreciation expense is removed.
4) The first problem imminent from the transaction is the possibility of double costing. In case the items are recorded as lump sum amount means that in case some of them are sold, they may be recorded again in sales without expensing them creating a double accounting problem (Weiss, 2012). Depreciation problem may also arise from the transactions. An accountant will find challenges in treatment of depreciation for the difference between the market value and purchase price. From the transaction, taxation challenges can also arise. When the transaction is taxed, the amount to be taxed may challenge the accountant. The ...Download file to see next pagesRead More
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