Question

1) Notsofast Inc. acquired land for $500,000, this is a material amount, on July 1, 2020. It erroneously recorded the full amount as an expense. Explain 2 tasks Notsofast must do when it discovers the error in 2021.

2) Briefly explain the following statement. Depreciation is a process of cost allocation, not valuation.

3) Why is land not depreciated? What are land improvements? Why do we record land and land improvements separately?

4) Describe when a company would use the DDB method versus straight-line depreciation.

Answer 1

Q1 :

​​​​​Q2 :

The term depreciation often is confused with a decline in value or worth of an asset. Depreciation is not measured as decline in value from one period to the next.  Instead, it involves the distribution of the cost of an asset, less any anticipated residual value, over the asset's estimated useful life in a systematic and rational manner that attempts to match revenues with the use of the asset.