Accounting Practices Quiz

The plant production Manager computer broke down and the plant manager approved the immediate replacement. The IT Team purchased the required computer on behalf of the plant and charged the location CAD$2,500 for this piece of equipment. You are the plant controller, what you should do with this charge:

• The new computer equipment is a long-term tangible asset; thus, it needs to be capitalized with an amortization period of 3 to 5 years.

• Expense the IT charge into the plant maintenance expenditures.

• Account the IT charge as a prepaid expense and amortize for the next 12 months to smooth out the expense.

The plant manager ordered CAD$15,000 of new packaging materials. These are Company owned packaging materials and they can be used for shipping products for many of our customers. These packaging materials are normally good to use for 3 years. What is the accounting treatment of this packaging materials in accordance with our accounting policies:

• Expense it right away.

• Generate an AR so it can be capitalized in property plant and equipment with a 3-year amortization period.

• No AR is needed as is an operational cost and capitalized the amount in prepaids with a 3-year amortization period.

• Capitalized in an inventory account and write it down when broken.

A critical pump broke and the plant manager ordered a new one without an AR as it cannot wait until AR is signed as this may affect production, the new pump was immediately acquired, received, and installed. Total costs of the pump plus installation costs were $25,000. You are the plant controller, what you should do with this invoice:

• Not paying until AR is approved.

• Write down the residual book value of the broken pump and process the invoice through the ERP and expense it until AR is approved and when AR is approved move the charge to fixed assets.

• Write down the residual book value of the broken pump and process the invoice through the ERP and account as fixed assets, however, follow up on AR approval.

As part of your month end, you sent out your intercompany balance with XX Plant with an original CAD$9,000 charge allocated to them. After 2 months of no responses, the other plant controller replies stating that they do not accept those charges as they belong to a period that is already close. What you should do:

• Nothing as the amount is lower than $20,000 and wait until year-end account reconciliations.

• Accept the rejection and reverse the charge in your books.

• Escalate issue to get a resolution.

You are the plant controller, and the plant manager submits his expense report to you for processing. You do not see written evidence of the approval of the expense report from his direct supervisor. What you should do:

• Review the expense report and if all seems reasonable and expenses are business expenses approve and process for reimbursements.

• As plant manager is out of cash for something that is business related, reimburse the money right away and follow up with him on getting an approval.

• Ask the plant manager to get approval from his direct supervisor before processing reimbursement.

You are the plant controller, and the production manager submits his expense report to you for processing. You noted that the plant manager approved his expense report, however, the expenses report are related to MRO type of spending and not to travel and entertainment type of expenditures. What you should do:

• Review the expense report and if all seems reasonable and expenses are business expenses process for reimbursements.

• Review the expense report and if all seems reasonable and expenses are business expenses process for reimbursements, however, notify plant manager and production manager that this is against policy, and they should not use the expense report process for MRO related spending.

• Escalate issue to regional finance director.

• B and C.

The plant had a non-budgeted repair of CAD$50,000. What is the proper accounting treatment in accordance with our accounting policies?

• Capitalized the repair as it is bigger than CAD$5,000 and the repair is needed for the equipment to continue operating.

• As is not in the budget, we can capitalize the repair in prepaids and smooth the costs in the P&L to avoid the variance in the spending analysis.

• Expensed it right away.

You are the plant controller and at year-end the materials manager tells you that your participation in the physical inventory count is not needed as they know you are going to be very busy with closing the books at year-end and knowing that the external auditors are going to be on the premises auditing the physical count procedures. What you should do:

• Be thankful for the Materials team’s help so you can focus on closing the books when the physical count is made.

• Only pass on monitoring and supervising the physical inventory count when you have direct confirmation that the external auditors can take care of monitoring the physical count procedures.

• Be thankful for the Materials team’s offer, however, being involved in the year-end inventory count is part of your responsibilities and cannot be delegated.

You are the plant controller, and you were following up on the commercial team regarding the need to recover labor cost increases due to the new union agreement. The commercial team informed you that they are confident that in the next couple of weeks they are going to get a retro PO with a price increase. The retro price increase is estimated to be at least $250,000 with a maximum value of $350,000. The consensus from the commercial team and operations is that the PO will be finalized in $300,000. As the month end is approaching, the plant manager asks you to recognize this revenue this month end. What is the right accounting treatment of this retro payment?

You are the plant controller, and you receive a Property Tax re-assessment for the building amounting $9,000 for the current year. As per lease agreement, we are responsible for paying the property taxes. This is a non-budgeted expense. What is the correct accounting treatment under our accounting policies.

• Expense it right away.

• Recognize as prepaids and deferred expense in 12 months as is for this year property taxes.

• Recognize as prepaids. Include the expense in next year budget.

• Expense this property tax next year as is an approved expense in the budget.