Prentice Printers commenced business on 1 July 2010, acquiring the printing machine on that day for 480,000.
Question:
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.
Step by Step Answer:
Financial Accounting An Introduction
ISBN: 9780273737650
2nd Edition
Authors: Mr Barry Elliott, Mr Augustine Benedict