(Total: 25 Marks) Case Study 1 Accounting treatment for PPE A new accountant has been appointed to Mountain Eagle Ltd (MEL) which is a reporting entity that is required to prepare general purpose financial statements, and has implemented major changes in the calculation of depreciation of machinery in accordance with the AASB 116-Accounting for PPE, because accountant believes that company financial statements do not show "true and fair view". With the approval of the board of directors, accountant revalued all of its machinery with a shorter useful life, and changed the depreciation method from straight-line to diminishing balance method. As a result, some parts of the factory have much larger depreciation charges. This has angered some operations managers who believe that, as they take particular care with the maintenance of their machines, their machines should not attract large depreciation charges that reduce the profitability of their operations and reflect badly on their performance appraisals. The operations managers met company chairman and expressed their anger and objection to this move. Chairman of MEL immediately called for a report from the accountant in this respect. The accountant is concerned with the direction and requires your assistance in preparing the report to the chairman. Required 1. Discuss the nature of a reporting entity. (5 Marks) 2. Explain what "true and fair view" in accounting is. (5 Marks) 3. How does the accountant choose between depreciation methods, i.e., straight-line versus diminishing-balance models? (5 Marks) 4. Describe how the change in depreciation method reflects the true and fair view of company's financial statements. (5 Marks) 5. Explain how the new accountant should respond