Q. Maplehurst Company?
Maplehurst Company manufactures huge spinning machines for the textile industry. The company had purchased USD 100000 of small hand tools to utilize in its business. The company's accountant recorded the tools in an asset account as well as was going to write them off over 20 years. Management wanted to write these tools off like an expense of this year because revenues this year had been abnormally high and were expected to be lower in the future. Management's goal was to smooth out income relatively than showing sharp increases and decreases. When told by the accountant that USD 100000 was a material item that must be accounted for in a theoretically correct manner management decided to consider the tools as consisting of 10 groups every having a cost of USD 10000. Ever since amounts under USD 20000 are considered immaterial for this company all of the tools could then be charged to expense this year. The accountant is anxious about this treatment. She doubts that she could effectively defend management's position if the auditors challenge the expensing of these items.