Question
This same bookkeeper, while new to accounting, has many years of experience with the real estate market. She anticipates that the building will go up
This same bookkeeper, while new to accounting, has many years of experience with the real estate market. She anticipates that the building will go up in value by 10% per year for each of the next 5 years. Therefore, she feels that no depreciation is required for the next 5 years. She said that if anything, we should be increasing the value of the warehouse each year, not decreasing it.
Indicate 1) whether you agree with her suggestion and 2) your own words, briefly explain how your choice is acceptable under GAAP, using at least two financial statement/conceptual framework concepts to CLEARLY and strongly support your answer. Hint: Representational faithfulness and free from error are too general to strongly support an opinion in this case.
This same bookkeeper, while new to accounting, has many years of experience with the real estate market. She anticipates that the building will go up in value by 10% per year for each of the next 5 years. Therefore, she feels that no depreciation is required for the next 5 years. She said that if anything, we should be increasing the value of the warehouse each year, not decreasing it.
Indicate 1) whether you agree with her suggestion and 2) your own words, briefly explain how your choice is acceptable under GAAP, using at least two financial statement/conceptual framework concepts to CLEARLY and strongly support your answer. Hint: Representational faithfulness and free from error are too general to strongly support an opinion in this case.
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