15. Fixed Assets You are an audit trainee working for the Accounting, Audit and Tax practice of Reeve, Bigland and Khan (RBK). One of your clients is Springbank Ltd. They have provided RBK with a trial balance reflecting all of the transactions in the year; you are to make any required adjustments to the trial balance and to produce final statutory accounts under FRS 102. The managing director and principal shareholder of Springbank has advised you that, 6 months into the financial year, the firm purchased a new item of machinery. The cost was 28,000, she expects to use the machinery for 5 years and estimates its salvage value to be 6,000. She would like to know the effect of depreciating the asset on a straight-line basis and on a reducing balance basis. She also explains that she would like to report the highest permissible total asset value for the current year as she would like Springbank to pay a special dividend to the firm's shareholders. She has asked for your advice on whether you could suggest changes to the proposed depreciation methods that would achieve a higher asset value. She states that, in her opinion, the value of Springbank's land and buildings is now 50,000 higher than it cost 12 years ago, currently recorded at 150,000. She also believes they have generated a mailing list of loyal customers which they would be able to sell for 25,000. Required: a) Show the net book value at the year end and the depreciation expense for the year using straight-line depreciation, charging depreciation for the full year. (3 marks) See next page 15 (continued) b) Show the net book value at the year end and the depreciation expense for the year using reducing balance depreciation at the rate of 25%, charging depreciation for the full year. (3 marks) c) Suggest possible estimates and assumptions that Springbank's managing director could change that would result in a higher asset value than shown in a) and b) above. (3 marks) d) Explain with reasons whether Springbank would be able to revalue its Land and Buildings in order to pay the special dividend. (4 marks) e) Explain with reasons whether Springbank would be able to include in fixed assets a value of 25,000 for the mailing list. (2 marks) (Total of 15 Marks)