Reference no: EM132781401

Recently Sea Eagle Ltd experienced a strike that affected a number of its operating plants. The group accountant of Sea Eagle Ltd indicated that it was not appropriate to report depreciation expense during this period as the equipment was not used during the strike. She stated that during the strike the equipment did not depreciate and an inappropriate matching of costs and revenues would result if depreciation were charged. She based her position on the following points.

1. It is inappropriate to charge the period with costs for which there are no related revenues arising from production.

2. The basic factor of depreciation in this instance is wear and tear, and because the equipment was idle, no wear and tear occurred.

Required

problem 1: You are a part of the auditing team that analyses the accounts of Sea Eagle Ltd. Write report to your supervisor in relation to the views of the group accountant of Sea Eagle Ltd.