AYAT and Co. is a Pakistani company that manufactures hydraulic lifting, loading, and handling solutions worldwide. Their financial statements are prepared with the International Financial Reporting Standards (IFRS) and not with the Generally Accepted Accounting Principles that are used in the United States. One way that this difference affects this case is that the IFRS refers to self-constructed assets as prepayments and assets under construction. For this case it was necessary to be able to read and analyze a companys financial statements and understand what the numbers and accounts represented. For example, it is imperative to know that assets that are not in use are not depreciated and that is why there is no depreciation for the prepayments and assets under construction account. Another important aspect of this case is understanding how the different methods of depreciation will have an impact on the financial statements. If a company chooses a depreciation method does not represent their actual depreciation in the best way, then their financial statements will most likely be inaccurate. AYAT 4 and Co. chooses to use the straight-line depreciation method, which may not be the best option for their company as that method depreciates equipment evenly over a period. The problem with this is that if AYAT and Co. uses the equipment a lot more in one period than another, the depreciation expense will be underestimated in one period and then overestimated in a later period. Another problem with depreciating equipment incorrectly is that if it is sold before it is depreciated it might be valued in the books wrong and then the company could end up reporting a gain on the equipment because the depreciation was overestimated, or it could report a loss because the depreciation was underestimated. These seemingly small decisions can have a large impact on a companys financial statements, and it could be presenting false information which is why companies should always consider all possible methods. Requirements: a. Based on the above illustration of AYAT and Co., what sort of PP&E do you think the company has? b. The 2019 balance sheet shows PP&E of PKR.150,000. Interpret this number. c. Enlist equipment that should report by AYAT and Co. in notes to account of the financial statements? d. In the notes to account, AYAT and Co. shows Prepayments and assets under construction. What does this subaccount represent? Why does this account have no accumulated depreciation? Explain the reclassification of PKR.14,958 in this account during 2019. e. How does AYAT and Co. depreciate its property and equipment? Does this policy seem reasonable? Explain the trade-offs management makes in choosing a depreciation policy. f. AYAT and Co. wants to renovate PP&E as per routine instead of purchasing new one. How does AYAT and Co. treat these expenditures? What is the alternative accounting treatment? Consider the PKR. 50,000 added to Other plant, fixtures, fittings, and equipment during fiscal 2019. Assume that these net assets have an expected useful life of seven years and a salvage value of PKR.1,500. Prepare a table showing the depreciation expense and net book value of this equipment over its expected life if AYAT and Co. recorded a full year of depreciation in 2019. Also, Compare the total two-year income statement impact of the equipment under the two depreciation policies. Comment on the difference