Question

Non-current assets are being audited and the following factors have been discovered:

Motor vehicles are depreciated at 25% pa straight line (full year charge in the year of acquisation, no charge in the year of disposal). The cost of the vehicles at the end of the period is $200.000 and the depreciation charge for the year is $50.000. Because mosts care are kept for at least 5 years the company is thinking of changing its depreciation rate for cars to %20 pa. So that the charge would become $40.000.

the question is :

Please fill the blanks acc

The proposed change in depreciation rate is a change of accounting policy/ accountin method/ accounting estimate and the auditor must ensure that this is handled in the financial statements as a prospective change/ retrospective change. The change will increase/decrease reported profits. The auditor must evaluate whether the charge is accurate/ reasonable/ correct.

Answer 1

Filled blanks :

The proposed change in depreciation rate is a change of accounting policy and the auditor must ensure that this is handled in the financial statements as a prospective change. The change will increase reported profits. The auditor must evaluate whether the charge is reasonable.

=> This is because depreciation rate has been reduced to 20% from 25%, which bring less depreciation expense and thus increase future reported profits. The change is forward looking so a prospective one.