Discussion 3 ACC308.docx - Discussion 3 ACC308 What is the...

This preview shows page 1 - 2 out of 2 pages.

Discussion 3 ACC308 What is the difference in before-tax income between the CEO's and Heather's treatment of the situation? Discuss Heather Meyer's ethical dilemma. Do you agree with the ethical perspectives of your classmates? What implications could this have on future Healthy Life Food Company dealings? The difference between in before-tax income between the CEO’s and Heather’s approach to the situation is shown below: The CEO’s approach: Cost- $42,000,000 Previous annual depreciation- ($42,000,000/10 years) = $4,200,000 Depreciation to date (2011-2012)- ($4,200,000*2 years) = $8,400,000 Book Value- ($42,000,000-$8,400,000) = $33,600,000 Estimated remaining life (2013-2015)- ($33,600,000/3 years) = $11,200,000 New annual depreciation- $11,200,000 2013 Income would include only a depreciation expense of $11,200,000. Heather’s Approach: Cost- $42,000,000 Previous annual depreciation- ($42,000,000/10 years) = $4,200,000 Depreciation to date (2011-2012)- ($4,200,000*2 years) = $8,400,000 Book Value- ($42,000,000-$8,400,000) = $33,600,000 Write down- $12,900,000 New depreciable base- ($33,600,000-$12,900,000) = $20,700,000 Estimated remaining life (2013-2015)- ($20,700,000/3 years) = $6,900,000 New annual depreciation- $6,900,000 2013 income would include a depreciation expense of $6,900,000 plus an asset write down of $12,900,000 totaling a $19,800,000 income reduction.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture