"Accounting Assignment YearQuestion 1Depreciation is systematic allocation of cost of a fixed asset which has useful life of more thanone year. To allocate whole cost of an asset in year in which it is purchased will not be fairallocation of cost as asset will generate benefit for more than one year, to by followingconceptual framework of accountingexpense of a period should match its benefit. Matchingconcept is basic underlying assumption of conceptual framework. So in order to match cost andbenefit an expense is charged to income statement in respect of the asset purchased and cost isexpensed out as much the benefit is acquired from the asset in that period. If full cost of an assetis charged to the year in which it is purchased then it can present misleading picture of financialperformance of the company.For depreciation charge for the first time an accountant will require information about useful lifeof the asset.How useful life of an asset will be determined first time:Useful life of an asset is an estimation of length of time an asset can be used to generate benefitfrom it. It is not generally the actual time when an asset will last. Useful lives of assets vary dueto usage by users, due to company environment, its repair maintenance policy, usage of asset byexperts, frequency of asset usage. Change in technology can also affect asset’s useful life.Change in laws and economic changes also affect asset life.(Maverick, May 12, 2015)The internal revenue service (IRS) is developed to take guidance upon useful lives of differentassets. IRS estimations of useful lives are based upon factors that can affect asset over time.Useful life can be adjusted if any change occurs to an asset or benefit that can be earned from it,has been changed. There should be definite valid reason for that adjustment.(David H. Helmer,2016)1 Accounting Assignment YearScrap value or residual value: after determination of useful life of an asset, next step is todetermine its scrap value. Scrap value is the value that can be earned from sale of an asset at endof its useful life. Scrap value can be estimated by gathering information from market regardingscrap value of an asset.Scrap value can be determined using this formula: R= [1-Nv(SCRAP VALUE/COST)]X100 N IS USEFUL LIFER IS DEPRICIATION RATECost of an asset is value at which asset was purchased and other costs that were incurred to bringthe asset to its present location and state of use.Depreciation method: after ascertaining asset cost its scrap value, useful life, depreciation rate iscalculated by using different methods or formulas. These different methods are used based uponusage frequency or benefit generation basis. For example if an asset produce more units in earlyperiods of its useful life then diminishing balance method is used to charge depreciation becausethis method results more expense of depreciation charge in early years of asset and reducesdepreciation charge with passage of periods of its life. Second method is straight-line method ofdepreciation which charges a uniform rate of expense to all periods of asset useful life. Thismethod is used for assets which produce same quantity of products in different periods of assetlife. Journal entries:Depreciation expense account $0000 Accumulated depreciation account$0000Debit form part of expense in income statementCredit will form part of balance sheet (asset-accumulated depreciation)Question 22 Accounting Assignment YearPower generator is a fixed asset that is ready to use on 1 July 2018, when an asset is available foruse its depreciation expense will be charged from that date plus other costs like obtaining accessto site, power permit and engineer’s fee will become part of cost of asset as mentioned ininternational accounting standard 16.For decommissioning provision recognition IFRIC 1(changes in existing decommissioning, restoration and similar liabilities) and IAS 37 arefollowed. A liability under IAS 37 is recognized when there is liability that is present obligationraised from past event. Decommissioning costs are recognized in cost of asset under IAS 16 notin profit and loss. These are the costs that are necessary to restore land or site to its originalvalue. Modifications due to installation of plants may affect communities so its legal obligationof company to restore site. IAS requires decommissioning cost to be recognized at its presentvalue by using discount factor. Decommissioning cost obligation increases over time due tounwinding of discount. An asset decommissioning cost is an obligation that incurred interest andexpense over periods.Cost of asset $12,550,000 +$ 4001500 + $809641 = $17361141Present value of dismantling total cost$2100000 x (1+10%)^-10 = $809640Unwinding of discount$809640 x 10% = $80964th 30 June 2018Power generator installation $17361141 Cash$16551500Asset retirement obligation$809641th 30 June 20193 Accounting Assignment YearFinance cost ($809641*10%) $80964 Asset retirement obligation$80964th 30 June 2024Finance cost ($809641*10%) $80964 Asset retirement obligation$80964Question 3The percentage of completion method is used to recognize revenue and gross profit in the periodin which revenue or gross profit arise rather than in year when construction contract iscompleted. Percentage of completion is calculated by dividing construction costs incurred to datewith total construction costs that are estimated. Completed contract method is used bymanufacturer and constructors. When percentage of completion does not been reliablymeasurable. In this method all revenue, expenses and gross profit is deferred until the contract iscompleted.% of completion = total construction costs to date/total estimated costs of contract.Gross profit to date = % of completion x total estimated gross profitGross profit for the year = gross profit to date – gross profit in prior yearsDuring year costs are accumulated in an asset account with name of construction in processaccount: year 2015Construction in process$104 Accounting Assignment YearAccounts payable $10 In year 2016 costs recognized as:Construction in process$18Accounts payable $18In year 2017 costs recognized as:Construction in process$12Accounts payable $12Billing bookings for each year: year 2015Contract receivable$12Progress billing $12Billing bookings for each year: year 2016Contract receivable $20Progress billing $20Billing bookings for each year: year 2017Contract receivable $18Progress billing $18To record the cash collected:For year 20155 "