Lucky & Co’s income statement shows a loss of Rs. 3,000. The owner

1.	Lucky & Co’s income statement shows a loss of Rs. 3,000. The owner thinks that there is no need to provide for depreciation as the company has made a loss. He also suggests his accountant to change the method of depreciation for the next year so as to avoid the loss. But, the accountant is hesitant to make the necessary changes suggested by his owner. Now, discuss on the following points:(i) Do you agree on the point that there is no need to charge depreciation when the company has made a loss?(ii) Why does the accountant hesitate to make the changes suggested by his owner?(iii) What are the accounting principles not followed if the accountant agrees to his owner’s suggestion?(iv) Do you think charging depreciation could be the only reason for the company’s loss?
Answer» (i) No, I don’t agree on the point that there is no need to charge depreciation when the company has made a loss. We have to charge depreciation whether profit or loss, otherwise we cannot find out the actual profit or loss. (ii) The accountant hesitates to make the changes suggested by his owner because it will differ the profit or loss for the business. The depreciation is a necessary one, so it must be deducted every year. (iii) If the accountant agrees to his owner’s suggestion, they will not follow double entry system. (iv) No, charging depreciation could not be the only reason for the company’s loss, because the business activities are subject to change but the depreciation is compulsory when the business is running.

Lucky & Co’s income statement shows a loss of Rs. 3,000. The owner thinks that there is no need to provide for depreciation as the company has made a loss. He also suggests his accountant to change the method of depreciation for the next year so as to avoid the loss. But, the accountant is hesitant to make the necessary changes suggested by his owner. Now, discuss on the following points:(i) Do you agree on the point that there is no need to charge depreciation when the company has made a loss?(ii) Why does the accountant hesitate to make the changes suggested by his owner?(iii) What are the accounting principles not followed if the accountant agrees to his owner’s suggestion?(iv) Do you think charging depreciation could be the only reason for the company’s loss?

Answer»

(i) No, I don’t agree on the point that there is no need to charge depreciation when the company has made a loss. We have to charge depreciation whether profit or loss, otherwise we cannot find out the actual profit or loss.

(ii) The accountant hesitates to make the changes suggested by his owner because it will differ the profit or loss for the business. The depreciation is a necessary one, so it must be deducted every year.

(iii) If the accountant agrees to his owner’s suggestion, they will not follow double entry system.

(iv) No, charging depreciation could not be the only reason for the company’s loss, because the business activities are subject to change but the depreciation is compulsory when the business is running.

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