Prentice Printers commenced business on 1 July 2010, acquiring the printing machine on that day for 480,000.

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Prentice Printers commenced business on 1 July 2010, acquiring the printing machine on that day for £480,000. The useful life of the machine is estimated at ten years and the total cost of repair and maintenance during the whole life estimated at £120,000. Accordingly, in the financial statements for the year ended 30 June 2011, they have depreciated the machine by £48,000 and have, in addition, set up a provision for machine maintenance of £12,000, being a tenth of the total anticipated cost. The actual cost of maintenance that year was £3,200 which was offset against the provision.


Required: 

Comment on the correctness of this accounting for provision.

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Financial Accounting An Introduction

ISBN: 9780273737650

2nd Edition

Authors: Mr Barry Elliott, Mr Augustine Benedict

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