Question: The audit senior has asked you to perform analytical procedures to estimate the reasonableness of recorded depreciation expense of the delivery vehicles of a client.

The audit senior has asked you to perform analytical procedures to estimate the reasonableness of recorded depreciation expense of the delivery vehicles of a client. Changes in the account occurred pretty much evenly during the year. The estimated useful life is 6 years. Estimated salvage value is 10% of original cost. Straight-line depreciation is used. Additional information:
Delivery Equipment (per General Ledger)
Beginning balance ......... $380,500
Additions ........ 154,000
Disposals ......... (95,600)
Ending balance ....... $438,900
Current year depreciation expense per books—$60,500

Required
Estimate the amount of depreciation expense for the year using analytical procedures. Is the recorded depreciation expense acceptable? Explain, including a discussion of how precise an analytical procedure has to be to support an account balance.

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