Guidance Sandwich Providing commentary before and after the

Guidance Sandwich: Providing commentary before and after the guidance excerpt in your own words.

Problem: Savvy Sisters, a high-end furniture production company, has purchased a new plant and has asked you: Over what period should our new plant be depreciated? The plant\'s estimated useful life is 40 years. Using a guidance sandwich, respond to this question. That is, introduce the issue, quote relevant guidance, then summarize how the guidance applies to the issue.

Solution

Issue here is to determine the time over which depreciation must be allowed. As per the general concept of depreciation accounting as recognized by GAAP and IFRS both, depreciation is provided over the useful life of the asset. Concept is that asset must be recognized in the books of accounts till it is useul to the operations of the business. Thus, Savvy sisters may depreciate the asset for 40 years, that is its useful life.