Define PPE and explain how materiality affects the concept of PPE?
Property , plant, and equipment (PPE) is a long-term investment that is critical to the
functioning of a company. PPE are all tangible assets, which means they are either physical or
touchable; consequently, they are not readily convertible to cash. The term “materiality” refers to
the fact that misstatements of items are material if they can affect the economic choices made by
users based on the financial statements. As a result of materiality,ppe is affected where the
significance of a misstatement is determined by the magnitude and type of the omission in light of
the external conditions. In addition, information is significant if its omission can affect user choices
based on financial information about a particular reporting entity.
Define depreciation. Explain what assets need not be depreciated and list the main
methods of calculating depreciation?
Depreciation means that an asset loses all of its original cost over time until the cost is nil
or insignificant. Assets such as office equipment, computers, machinery, and buildings may all
suffer from depreciation.
There is no depreciation on current assets, such as accounts receivables and inventories.
We anticipate that they will be converted to cash within one year, which is usually the case.
Additionally, items with a short useful life are immediately applied to expenses rather than
depreciated. Because they are so cheap, keeping them as assets in the books would be a waste of
time and money.
The primary method used is the straight-line method.
This is where companies choose to depreciate their properties by the same amount each
year for as long as it’s usable. Monthly straight-line depreciation is calculated using the following