Reference no: EM132467692

Question (A) You are the chief financial director of Hasson Limited. You have a meeting with the newly appointed independent non-executive director, Johnny, who is an IT expert. Johnny has little knowledge on the annual report.

• From the annual report, Johnny found that the depreciation expense decreased from $1,400,000 in Year 2016 to $840,000 in 2017 and to $504,000 in 2018. He did not understand why the amount of depreciation expense was decreasing as the company did not have any disposal of assets during those years.

• Besides, he did not understand why depreciation was still needed when the market price of the company's property had been increased during recent years.

Problem 1: Explain to Johnny regarding his queries about the concept and treatment of depreciation. (10 marks)

Question (B) Vero Limited is a company selling office furniture. The newly appointed managing director discussed with the accountant regarding the changes of the inventory costing method. He wondered why the company changed the inventory costing method from FIFO in 2017 to LIFO in 2018. Subsequently, the company switched back to FIFO in 2019.

Problem (a) Discuss which accounting principle would be violated if Vero Limited changed the inventory costing method from year to year.

Problem (b) Discuss the implications and consequences of changing the inventory costing method from year to year.