Shakil is uncertain about the applicability of the cost principle to plant assets. Explain the

principle to Shakil.

Prity, an accounting major, is working on a case problem for one of his classes. In the 2 of 2

case problem, the company needs to raise cash to market a new product it developed.

Sonia, a marketing major, takes one look at the company's balance sheet and says, "This

company has an awful lot of goodwill. Why don't you recommend that they sell some of

it to raise cash?" How should Prity respond to Sonia?

Often research and development costs provide companies with benefits that last a number

of years. (For example, these costs can lead to the development of a patent that will

increase the company's income for many years.) However, generally accepted accounting

principles require that such costs be recorded as an expense when incurred, Justify your

answer with suitable example.

ABC Company hires an accounting intern Nuzhat, who says that intangible assets should

always be amortized over their legal lives. Is Nuzhat correct? Give arguments,

Kajol believes that goodwill has been defined as the value of all favorable attributes that

relate to a business enterprise. What types of attributes could result in goodwill? Explain.

6. You are part of a team reviewing the financial statements of a new computer company.

Looking over the fixed assets accounts, one long-term tangible asset sticks out. It is

labeled *USB" and valued at TK 10,00,000. You ask the company's accountant for more

detail, and he explains that the asset is a USB drive that holds the original coding for a

game the company developed during the year. The company expects the game to be fairly

popular for the next few years, and then sales are expected to trail off. Because of this,

they are planning on depreciating this asset over the next five years using the double-

declining method. Does this recording seem appropriate, or is there a better way to

categorize the asset? How should this asset be expensed over time?

You are struggling to determine which deprecation method you should use for your new

silk-screening machine. you expect sales to increase over the next five years. You also

expect (hope) that in two years you will need to buy a second silk-screening machine to

Keep up with the demand for products of your growing company.

Which depreciation method makes more sense for you: higher expenses in the first few

years, or keeping expenses consistent over time? Or would it be better for you to not

think in terms of time, but rather in the usage of the machine!

Silver Lid, has acquired a major manufacturing division from Fem Lid. The accountant,

Mashfie, has shown the board of directors of Silver Ltd. the financial information

regarding the acquisition. Mashfie calculated a residual amount of Tk. 45,00000 to be

reported as goodwill in the accounts. The directors are not sure whether they want to

record goodwill on Silver LId. S statement of financial position. Some directors are nol

sure what goodwill IS or why the company has bought it. Other directors even query

whether goodwill is an asset, with some being concerned with future effects on the

statement of profit or loss and other comprehensive income.

Prepare a report for Mashfie to present to the directors to help them understand the nature

of goodwill and how to account for it.

On January 1, 2020, Arlo Company purchased the following two machines for use in its

production process.

Machine A: The cash price of this machine was $55,000. Related expenditures

included:sales tax $2,750, shipping costs S100, insurance during shipping $75,

installation and testing costs $75, and $90 of oil and lubricants to be used with the

machinery during its first year of operation.Arlo estimates that the useful life of the

machine is 4 years with a $5,000 salvage value remaining at the end of that time period.

Machine B: The recorded cost of this machine was $100,000. Arlo estimates that the

useful life of the machine is 4 years with a $10,000 salvage value remaining at the end of

that time period.

Required:

(a) Prepare the following for Machine A.

(1) The journal entry to record its purchase on January 1, 2020,

(2) The journal entry to record annual depreciation at December 31, 2020, assuming the

straight-line method of depreciation is used.

(b) Calculate the amount of depreciation expense that Arlo should record for machine B

each year of its useful life under the following assumption.

(1) Arlo uses the straight-line method of depreciation.

(2) Arlo uses the declining-balance method.The rate used is twice the straight-line rate,

(3) Arle uses the units-of-activity method and estimates the useful life of the machine is

25,000 units. Actual usage is as follows: 2010, $,500 units; 2011, 7,000 units; 2012,

8,000 units; 2013, 4.500 units,

(c) Which method used to calculate depreciation on machine B reports the lowest amount

of depreciation expense in year 1 (2020)? The lowest amount in year 4 (2023)? The

lowest total amount over the 4-year period?

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