Vehicle Replacement Program

You and the board of directors have decided to implement a vehicle replacement program. In this program the
board has agreed to replace the organization’s vehicles every 7 years. The board suggests that each vehicle
should be purchased with a combination of cash from operations and low-interest loans. Your accountant has
suggested that the organization use the sum-of-the years depreciation method on each subsequent new
vehicle purchase.
Questions

1. How would you prepare for the implementation of the program knowing that the first vehicle will be replaced
   in 2 years and that each vehicle will be replaced every 3 years after that?
   2.What is your understanding of the Generally Accepted Accounting Principles?
2. Why should an organization’s finances be audited by an objective professional?
3. What is the purpose of having an inventory control program?
4. What methods do organizations use for recognizing depreciation?

Sample Solution