Lan and Mai are students at Accounting and Auditing Faculty. After completing Accounting Unit, they are now able to prepare financial statement and discussing about the figures on financial report. Mai said, "all the figures on financial statement are definitely reliable because accountants have to adhere with strict code of ethics, integrity standards, and set of accounting rules and standard such as IFRS when preparing the report". Do you agree or disagree with Mai's statement? Provide explanation and real-life examples (cases) to justify your opinion.
Part 3: Case Study
HP Company is suffering declining sales of its medical products. The president, Toshio Nakao, instructs his controller, Satoshi Kasai, to lengthen asset lives to reduce depreciation expense. A processing line of medical equipment, purchased for $4 million in January 2020, was originally estimated to have a useful life of 5 years and a salvage value of $200,000. Depreciation has been recorded for 2 years on that basis. Nakao wants the estimated life changed to 10 years total and the straight-line method continued. Kasai is hesitant to make the change, believing it is unethical to increase net income in this manner. Nakao says, “The life is only an estimate, and I've heard that our competition uses a 12year life on their medical equipment.”
Instructions
(a) Who are the stakeholders in this situation?
(b) Is the proposed change in asset life unethical? Give your explanation.
(c) What is the effect of Nakao's proposed change on income before taxes in the year of change?
Lan and Mai are students at Accounting and Auditing Faculty. After completing Accounting Unit, they are now able to prepare financial statement and discussing about the figures on financial report. Mai said, "all the figures on financial statement are definitely reliable because accountants have to adhere with strict code of ethics, integrity standards, and set of accounting rules and standard such as IFRS when preparing the report". Do you agree or disagree with Mai's statement? Provide explanation and real-life examples (cases) to justify your opinion.
Part 3: Case Study
HP Company is suffering declining sales of its medical products. The president, Toshio Nakao, instructs his controller, Satoshi Kasai, to lengthen asset lives to reduce depreciation expense. A processing line of medical equipment, purchased for $4 million in January 2020, was originally estimated to have a useful life of 5 years and a salvage value of $200,000. Depreciation has been recorded for 2 years on that basis. Nakao wants the estimated life changed to 10 years total and the straight-line method continued. Kasai is hesitant to make the change, believing it is unethical to increase net income in this manner. Nakao says, “The life is only an estimate, and I've heard that our competition uses a 12year life on their medical equipment.”
Instructions
(a) Who are the stakeholders in this situation?
(b) Is the proposed change in asset life unethical? Give your explanation.
(c) What is the effect of Nakao's proposed change on income before taxes in the year of change?
