On January 1, 2022, NEW Company Purchased a New Building

question 56

Essay

On January 1, 2022, NEW Company purchased a new building for $9,000,000. It is estimated that the Building will have a useful life of 12 years and have a salvage value of $1,000,000. At the end of the year, a similar warehouse across the street from NEW's building sold for $10,000,000. NEW's bookkeeper decides not to record any depreciation expense on the new building in the financial statements for the year ended December 31, 2022 because the building has not declined in value. Required - Identify and explain which accounting principle has been violated by not reporting depreciation expense on the new warehouse for the year ended December 31, 2022. How would this omission affect the credibility of the financial statements? Name two user groups that would be impacted by the omission?

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Definitions:

Third Parties

Individuals or groups besides the two involved in a transaction or legal case, often indirectly affected by the outcome.

Security Interest

A rephrased definition: A financial security provided by a debtor to a creditor as a guarantee for repayment of a loan, often involving a lien on an asset.

Attachment

A legal procedure by which a court of law, at the request of a creditor, designates specific property owned by the debtor to be transferred to the creditor, or sold for the benefit of the creditor.

Security Interest

A legal claim or right granted by a debtor to a creditor over the debtor’s property, which secures payment or performance of an obligation.