Question

Essay- Tangible asset accounting treatment

A company that sells new and used computers purchased 20 printers at $12,000 each for cash. The printers will be used as follows:.  1. The sales department will use one as a demo unit on the floor for 3 months because they think it will help with sales and then sell it. 2. The research department will get one to use as part of their work.  3. The accounting department will get one that they estimate will have a service life of 3 years.  The rest will be sold.  

For each of the the 3 examples please answer the following questions. :

1. What affect does the usage have on how the printers are accounted for in the books?

2.  What additional information do you need.

3. Based on the usage ( there are 4 alternatives) how would each accounting treatment appear on the income statement and balance sheet.

Answer 1

(1).

Usage of any purchased items helps in accurate recording of such items in the financial statements (income statement & Balance sheet). As per information of the question it is given that purchased printers have been used for various purposes & by different department thus on the basis of their use we will record these printers under suitable heads such as; selling expenses, research & development expenses or office expenses etc or in the balance sheet.

Thus we can say that usage of printers while doing accounting in the books of the firm & company.

(2).

No additional information will be required because given information is sufficient to classifying & suitable recording of such expenditures in the books of account. As we know that for proper clasisfication of the expenditures we only need to know purpose of purchase and purpose of usage. Thus no additional information will be required.

(3).

Based on usage followings 4 alternative accounting treatment will be made;

i. Printers used by the sale department will be classified as selling expenses in the Income statement.

ii. Printers used by the R&D department will be classified as R&D expenses in the Income statement. If R&D work in process then these will be classified as asset in the balance sheet (But with some ceratin accounting terms & conditions).

iii. Printers used by the account department will be classified as non-current asset (fixed asset) in the balance sheet and a proper annual recording of depreciation expenes based on suitable depreciation method will be made in the Income statement.

iv. Remaining value of printers will be recorded as inventory under current assets head in the Balance sheet.