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Discussion Material:
ABC company is serving the world’s top asset finance and leasing companies with smart
software technology for over four decades. It has net worth of $3.98 Million dollars. It has a
private air craft costing Rs. 40 million. According to air regulation requirements, it would be
overhauled every four years. An overhaul costs Rs.1.6 million. The company policy has been to
create a provision for depreciation of Rs. 2 million on a straight-line basis over twelve years with
an annual provision of Rs.400,000 to meet the cost of the required overhaul every four years.
Requirement:
You are required to comment is there a present obligation as a result of a past obligating
event for overhauling of aircraft?
How company can avoid overhauling cost of aircraft?
What would be the treatment of depreciation if no overhaul cost is recognized as a result
of first question requirement.

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MGT401 assignment no 02 solution fall 2020

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MGT401 Assignment Solution # 2 Fall 2020 - 2021

MGT401 Assignment 2 Solution Fall 2020 - 2021 ||Financial Accounting II ||

FINANCIAL ACCOUNTING -11(MGT401)

 

ASSIGNMENT NO # 2

 ABC Company is serving the world’s top asset finance and leasing companies with smart software technology for over four decades. It has net worth of $3.98 Million dollars. It has a private air craft costing Rs. 40 million. According to air regulation requirements, it would be overhauled every four years. An overhaul costs Rs.1.6 million. The company policy has been to create a provision for depreciation of Rs. 2 million on a straight-line basis over twelve years with an annual provision of Rs.400, 000 to meet the cost of the required overhaul every four years.

 

REQUIREMENT

  1. You are required to comment is there a present obligation as a result of a past obligating event for overhauling of aircraft?

Answer: No there is no present obligation.

 

  1. How company can avoid overhauling cost of aircraft?

Answer: Company can avoid overhauling by selling the aircraft.

 

  1. What would be the treatment of depreciation if no overhaul cost is recognized as a result of first question requirement?

Answer: The cost is to be capitalized and then depreciated over 4 years.

 

 

STUDENT ID: BC190200960

FINANCIAL ACCOUNTING -11(MGT401)

 

ASSIGNMENT NO # 2

 ABC Company is serving the world’s top asset finance and leasing companies with smart software technology for over four decades. It has net worth of $3.98 Million dollars. It has a private air craft costing Rs. 40 million. According to air regulation requirements, it would be overhauled every four years. An overhaul costs Rs.1.6 million. The company policy has been to create a provision for depreciation of Rs. 2 million on a straight-line basis over twelve years with an annual provision of Rs.400, 000 to meet the cost of the required overhaul every four years.

 

REQUIREMENT

  1. You are required to comment is there a present obligation as a result of a past obligating event for overhauling of aircraft?

Answer: No there is no present obligation.

 

  1. How company can avoid overhauling cost of aircraft?

Answer: Company can avoid overhauling by selling the aircraft.

 

  1. What would be the treatment of depreciation if no overhaul cost is recognized as a result of first question requirement?

Answer: The cost is to be capitalized and then depreciated over 4 years.

Answer 1

Yes there is present obligation (legal) to create a provision for overhauling of aircraft as a result of past obligating event because for an event to be an obligating event it is necessary that the entity has no realistic alternative to settle the obligation created by the event.

Answer 2

The company can avoid the overhauling cost of aircraft by selling the aircraft in the fourth year or before.

Answer 3

Depreciation of 2 million will be recognized as expense every year

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