Hollis incorporated owns an office building adjacent to its factory. in approximately 14 months from now, hollis intends to begin using the building to house its accounting department. hollis prepares a classified balance sheet using an 18-month operating cycle. how would classification of this building be different if hollis used a one-year operating cycle?

Question

Haylie Cisneros

Business

25 March, 13:15

Hollis incorporated owns an office building adjacent to its factory. in approximately 14 months from now, hollis intends to begin using the building to house its accounting department. hollis prepares a classified balance sheet using an 18-month operating cycle. how would classification of this building be different if hollis used a one-year operating cycle?

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Jenny Bird · Answer 1

When Hollis Inc. uses an 18-month operating cycle, it will classify the office building adjacent to its factory as Property Plant and Equipment. This is because it will start using the office for its internal purposes and hence it can be classified as Property, Plant and Equipment.

However, if Hollis were using a one year operating cycle, it will classify the office building as a long-term investment. This is because the company intends to use this office building for internal purposes only after 14 months - which doesn't fall in the current operating period.

It will classify the building as Property Plant and Equipment in the following year, when it begins using the office building.