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:

Promotion Period

A specific timeframe during which marketing strategies are employed to increase awareness and sales of a product or service.

Lot Size

The quantity of a particular item that is to be manufactured or purchased in a single batch or order.

Bullwhip Effect

The phenomenon in supply chains where small variations in demand at the retail level cause progressively larger fluctuations in demand at the wholesale, distributor, and manufacturer levels.

Bullwhip Effect

A phenomenon in supply chains where small changes in consumer demand cause larger and more amplified fluctuations in orders and inventory levels up the supply chain.