Givens Ltd and Runge Ltd are companies that are similar in many respects. One difference is that Givens Ltd uses the straight line method and Runge Ltd uses the diminishing- balance method at the double the straight line rate. On 2 January 2011, both companies acquired the following depreciable assets.

Assets Cost Residual Value Useful Life

Building $320,000 $20,000 40 years Equipment 125,000 10,000 10 years

Including the appropriate depreciation charges, annual profit for the companies in the years 2011, 2012 and 2013 and total profit for the 3 years are as follows.

2011 2012 2013 Total Givens Ltd $84,000 $88,400 $100,000 $272,400

RungeLtd 68,400 76,000 85,000 229,000

As at 31 December 2013, the statements of financial position of the two companies are similar except that Runge Ltd has more cash than Givens Ltd.

Linda Yank is interested in buying one of the companies. She comes to you for advice.

Questions:

Determine the annual and total depreciation recorded by each company during the 3 years.

Assuming that Runge Ltd also uses the straight-line method of depreciation instead of the diminishing- balance method as in (a) prepare comparative revenue data for the 3 years.

Which company should Linda buy? Why?