The management of Predator Ltd has been analysing the financial reports provided by the accountant, who has been with the firm for a number of years. Management has expressed its concern over depreciation charges being made in relation to the companys equipment. In particular, it believes that the depreciation charges are not high enough in relation to the factory machines because new technology applied in that area is rapidly making the machines obsolete. Managements concern is that the machines will have to be replaced in the near future and, with the low depreciation charges, the fund will not be sufficient to pay for the replacement machines.

Required:

Is the management correct in their assumptions? (4 Marks)