BuildTech Rentals is a construction equipment rental company and owns various construction equipment, including excavators, bulldozers, and cranes: Introducing to accounting, Group Assignment, UM, Malaysia

School

Universiti Malaya (UM)

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Assignment Type

Individual Assignment

Subject

Introducing to accounting

Uploaded by Malaysia Assignment Help

Date

17/06/2024

Part A 

Question 1

BuildTech Rentals is a construction equipment rental company and owns various construction equipment, including excavators, bulldozers, and cranes, which it rents out to construction firms on a short-term and long-term basis.

The company’s financial statements show significant investments in equipment over the years. One of the key challenges for BuildTech Rentals is accurately accounting for depreciation to reflect the wear and tear, usage, and obsolescence of its equipment. Proper depreciation accounting is crucial for ensuring accurate financial reporting and making informed business decisions.

BuildTech Rentals uses the straight-line method for most of its equipment but is considering whether other depreciation methods might better match the expense with the revenue generated by the equipment. The company also needs to decide on appropriate useful life estimates and salvage values for the various types of equipment in its fleet.

1) Compare the straight-line method of depreciation with reducing balance method andunit production method. Suggest which method would be most appropriate for Build Tech Rentals.
2) Explain how does the choice of depreciation method impacts the company’s financial statements, including the balance sheet and income statement?
3) Discuss the tax implications of different depreciation methods. Explain how might the choice of depreciation method affect BuildTech Rentals’ taxable income?
4) Explain the matching principle in accounting and how it relates to depreciation. Why is it important for BuildTech Rentals to match depreciation expenses with the revenue generated by the equipment?

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Question 2

Revenue Recognition in a Software Development Company

Scenario

You are an accounting student analyzing the financial practices of “TechSolutions Inc.,” a software development company that creates custom software solutions for various industries. The company’s revenue streams include one-time sales of software licenses, ongoing subscription services, and long-term contracts for custom software development.

Required:

1. Revenue Recognition for Software Licenses 

Explain how should TechSolutions Inc. recognize revenue from the sale of one-time software licenses? At what point is the revenue considered earned and realizable?

2. Subscription Services

For ongoing subscription services, explain how should TechSolutions Inc. recognize revenue? Explain the process of recognizing revenue over time as the services are provided.

3. Long-term Contracts

Describe the methods TechSolutions Inc. can use to recognize revenue from long-term contracts for custom software development. Explain the criteria which must be met to recognize revenue over time versus at a point in time?

4. Disclosure Requirements

Discuss the disclosure requirements related to revenue recognition. What information must TechSolutions Inc. include in its financial statements to comply with these requirements?

5. Ethical Considerations

Discuss the ethical considerations TechSolutions Inc. must keep in mind when recognizing revenue and how can proper revenue recognition practices enhance transparency and trust with stakeholders?

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Part B

Question 1

Based on the interim results below for Cabben Fashion Limited, it has shown a favourable receivables turnover ratio. Discuss 3 possible strategies that Cabben Fashion Limited have implemented to achieve an improved receivable turnover from 135 days to 91 days.

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