1. How should someone interpret the carrying amount (net book value) of plant and equipment? Use an example to explain how PP&E is reported on the balance sheet. Does the depreciated amount presented on the balance sheet represent the fair value of that asset? (4 marks) 2. Some people would argue that depreciation and amortization is arbitrary. Explain whether you agree or not Then explain why, under accrual accounting, depreciation and amortization is necessary. (4 marks) 3. While practicing your depreciation calculations for this exam, your friend provided you an example and their proposed solution Required: A. Explain the errors that were made (3 marks) B. Prepare the correct calculations and journal entries showing any relevant calculations (4marks) Example: A tractor is purchased on July 1, 2020 for $850,000. It is expected to have a useful life of 10 years. The residual value at the end of its life is $75,000. The company has a December 31 year end. U 1. How should someone interpret the carrying amount (net book value) of plant and equipment? Use an example to explain how PP&E is reported on the balance sheet. Does the depreciated amount presented on the balance sheet represent the fair value of that asset? (4 marks) 2. Some people would argue that depreciation and amortization is arbitrary. Explain whether you agree or not. Then explain why, under accrual accounting, depreciation and amortization is necessary. (4 marks) 3. While practicing your depreciation calculations for this exam, your friend provided you an example and their proposed solution Required: A. Explain the errors that were made (3 marks) B. Prepare the correct calculations and journal entries showing any relevant calculations (4marks) Example: A tractor is purchased on July 1, 2020 for $850,000. It is expected to have a useful life of 10 years. The residual value at the end of its life is $75,000. The company has a December 31 year end, Annual depreciation - Cost/Useful Life $850,000 / 10 years - $85,000/year Journal entries: Dr. Depreciation expense 85,000 Cr. Equipment 85,000