Question

When preparing its financial statements, a firm should include which of the following disclosures?

I. The firm's depreciation expense for the period.
II. The firm's accumulated depreciation.
III. Balances of major classes of depreciable assets.
IV. Details demonstrating how depreciation was calculated.
A. I, II and IV.
B. I, II and III.
C. II, III and IV.
D. I, III and IV.

Answer 1

When preparing its financial statements, a firm should include the depreciation expense for the period, accumulated depreciation, and balances of major classes of depreciable assets. Calculation details are often provided in the notes.

Step-by-step explanation:

When preparing its financial statements, a firm should indeed disclose various items related to depreciation. These include:

• Depreciation expense for the period, which represents the allocation of the cost of the assets over their useful lives.
• Accumulated depreciation, which is the total depreciation that has been recorded over time and reflects the reduction in value of the firm's assets.
• Major classes of depreciable assets, which indicates the different categories of assets and can provide insight into the nature of the company's capital investments.
• Details showing how depreciation was calculated, including the method used and the useful lives of assets.

Therefore, the correct answer is: B. I, II and III. While details on how depreciation was calculated (IV) are necessary, they are typically included in the notes to the financial statements rather than disclosed on the face of the financial statements themselves.