Question

1) Using the FASB coding system as a guide, which depreciation method would you recommend for a business within the computer manufacturing industry?
a * Do you consider that management should be able to determine both the number of years of useful life and the salvage value of fixed assets?
b * Should it be part of the responsibilities of the accountant to define the standard that should be applied to all assets?

2) taking into account GAAP and the International Accounting Standards (IAS).
What impact do you think the change to international standards may have on the quality and understanding of financial statements?

Answer 1

Answer 1:

A business in computer manufacturing industry should follow the guidelines provided in Generally Accepted Accounting Principles (GAAP). Such business should take advantage of accelerated depreciation in accordance with Modified Accelerated Cost Recovery System.

Part a:

No, the management should not be able to determine both the number of years of useful life of and asset and the salvage value of the asset as this will enable the management to manipulate the amount of depreciation significantly.

Part b:

Yes, the accountants should be given additional responsibility to define the standard that should be applied to all assets. However, the final should not be completely dependent on the accountants rather there should be necessary discussion between the accountants and the management to apply the most suitable standard to be followed for all assets.

Answer 2:

The objective behind modification of international accounting standards by International Accounting Standards Board is to improve the quality of financial reporting. Thus, any changes in international standard will improve the ability of the users to evaluate the financial performance and position of an organization better from the financial statements. Thus, the understanding of financial statements will be improved.