Required: A manufacturing company holds large amounts of factory machinery on its balance sheet. The machinery...

Required:

A manufacturing company holds large amounts of factory machinery on its balance sheet. The machinery is custom built using specifications that make it unsuitable for use in any other location. For this reason it is unlikely that there could exist a resale market for this machinery.

Discuss:

two advantages of using historical cost to measure this machinery. (2.5 marks)
two advantages of using the revaluation model to measure this machinery. (2.5 marks)

Expert Solution

Two advantages of using historical cost to measure this machinery are:

(1): Objectivity and reliability of accounting information – As the machinery is custom build and has no resale market determining its market value will be full of subjectivity and speculations. Using the historical cost method will ensure that valuing the machinery is not clouded with and subjective increase or decrease in its value. This completely removes any scope for manipulation of data as well.

(2): Simplicity and convenience as well as consistency of financial numbers – As the accounting data related to the machinery is recorded at its original amount there will be no need to restate accounting numbers every year. Secondly the accounting figures will be consistent over time and so intra-comparability as well as inter-comparability of accounting figures becomes easier.

Two advantages of using the revaluation model to measure this machinery are:

(1): Realistic depreciation – As the depreciation is based on the revalued amounts it will be more realistic in nature and will be in line with the fair value of the machinery, rather than its historical cost.

(2): More accurate worth of the machinery – The use of revaluation model will give an accurate worth of the machinery even though it does not have a resale market.

ekkarill92 answered 2 years ago

A manufacturing corporation has installed a plant and machinery in its factory as on 5th January,...

A manufacturing corporation has installed a plant and machinery in its factory as on 5th January, 2018. The purchase price of that plant and machinery was OMR 220,000 and on this price 8% of trade discount was included and 5% of rebates were included after deducting the trade discount. Initial delivery cost was OMR 12,500 in that 20% of which was handling cost of the whole machinery in the factory building. Cost of testing was OMR 7,500, professional fees to...

Bohemian Manufacturing Company has the following end-of-year balance sheet: Bohemian Manufacturing Company Balance Sheet For the...

Bohemian Manufacturing Company has the following end-of-year balance sheet: Bohemian Manufacturing Company Balance Sheet For the Year Ended on December 31 Assets Liabilities Current Assets: Current Liabilities: Cash and equivalents $150,000 Accounts payable $250,000 Accounts receivable 400,000 Accrued liabilities 150,000 Inventories 350,000 Notes payable 100,000 Total Current Assets $900,000 Total Current Liabilities $500,000 Net Fixed Assets: Long-Term Bonds 1,000,000 Net plant and equipment(cost minus depreciation) $2,100,000 Total Debt $1,500,000 Common Equity Common stock 800,000 Retained earnings 700,000 Total Common Equity...

Manufacturing Company Balance Sheet Partial balance sheet data for Upper Crust Company at August 31 are...

Manufacturing Company Balance Sheet Partial balance sheet data for Upper Crust Company at August 31 are as follows: Finished goods inventory $129,800 Prepaid insurance 13,100 Accounts receivable 505,700 Work in process inventory 88,200 Supplies 20,300 Materials inventory 38,900 Cash 243,400 Prepare the Current Assets section of Upper Crust Company’s balance sheet at August 31. Upper Crust Company Balance Sheet August 31 Current assets: $fill in the blank 2 fill in the blank 4 Inventories: $fill in the blank 6 fill...

Amusement Corp. showed the following amounts in the equity section of its balance sheet at January...

Amusement Corp. showed the following amounts in the equity section of its balance sheet at January 1, 2020: Preferred shares, $2 cumulative (in arrears for 2019), 10,000 shares issued Common shares 40,000 shares issued Retained earnings In 2021: $ 500,000 $ 800,000 $ 500,000 On January 20, 2020, On November 1, 2020, On December 31, 2020 Required 10,000 common shares were issued for $150,000 Cash dividends of $90,000 were declared. Dividends will be paid on January 18, 2021 Amusement Corp....

Value & Associates is the auditor for a manufacturing company with a balance sheet that includes...

Value & Associates is the auditor for a manufacturing company with a balance sheet that includes the line item 'Property, plant and equipment'. The company's management has asked Value whether adjustments or reclassifications are required for the following material items that have been included in or excluded from 'Property, plant and equipment'. 1. A block of land was acquired during the year. The land is the future site of the client's new headquarters, which will be constructed in the following...

An insurance company reported the following balance sheet at year end for 2009 (all amounts are...

An insurance company reported the following balance sheet at year end for 2009 (all amounts are in millions of dollars) Assets Investments $1500 Insurance assets 300 Total 1800 Liabilities and equity Insurance claims 700 Unearned premiums 140 Long-term debt 150 Equity 810 Total 1800 Investments are available-for-sale securities marked to market. The company reported the following income statement for 2010 Premium revenue 365 Investment income 60 Realized gains on investments 80 Total revenue 505 Insurance losses and expenses 405 Net...

Glamour Glass Pty Ltd manufactures glass kitchenware at its Campbelltown factory. Its manufacturing equipment includes large...

Glamour Glass Pty Ltd manufactures glass kitchenware at its Campbelltown factory. Its manufacturing equipment includes large machinery that was purchased 15 years ago. Glamour Glass uses small production runs, and although the machinery is old it is reliable. The company’s products are much sought after by speciality gift stores and up-market department stores such as David Jones. It also sells its products to Saks of Fifth Avenue, in New York. While Glamour Glass has many products, among the most popular...

Here are incomplete financial statements for Sheridan Company. Calculate the missing amounts. SHERIDAN COMPANY Balance Sheet...

Here are incomplete financial statements for Sheridan Company. Calculate the missing amounts. SHERIDAN COMPANY Balance Sheet Assets Cash $29,600 Supplies (a) Equipment (net) 64,000 Total assets $ (b) Liabilities and Stockholders' Equity Liabilities Notes payable $24,000 Stockholders' Equity Common stock 36,000 Retained earnings enter a dollar amount (c) Total liabilities and stockholders' equity $ (d) SHERIDAN COMPANY Income Statement Revenues $61,000 Depreciation expense enter a dollar amount (e) Salaries and wages expense 11,500 Interest expense 2,000 Net income $25,000 SHERIDAN...

13. Explain the choices that a bank that holds large amounts of adjustable-rate mortgage loans outstanding...

13. Explain the choices that a bank that holds large amounts of adjustable-rate mortgage loans outstanding has in order to protect its interest rate income.

Morrison Company uses a job-order costing system to assign manufacturing costs to jobs. Its balance sheet...

Morrison Company uses a job-order costing system to assign manufacturing costs to jobs. Its balance sheet on January 1 is as follows: Morrison Company Balance Sheet January 1 Assets Cash $ 37,950 Raw materials $ 9,900 Work in process 8,350 Finished goods 31,800 50,050 Prepaid expenses 2,600 Property, plant, and equipment (net) 120,000 Total assets $ 210,600 Liabilities and Stockholders’ Equity Accounts payable $ 16,200 Retained earnings 194,400 Total liabilities and stockholders’ equity $ 210,600 During January the company completed...

Question