CA 10-7 - value of land and building or whether to...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
CA 10-7 (a) If the land is undervalued so that a higher depreciation expense is assigned to the building, management interests are served. The lower net income and reduced tax liability save cash to be used for management purposes. By contrast, stockholders and potential investors are misled by the inaccurate cost values. They will have been deprived of information concerning the significant impact of changing real estate values on this holding. (b) The ethical question centers on whether to allocate the cost of the purchase on the fair market
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: value of land and building or whether to determine the allocation in view of the potential effect on net income. Phillips faces an ethical dilemma if Smith will not accept Phillips’ position. Phillips should specify alternative courses of action and carefully assess the consequences of each before deciding what to do. (c) For basket (lump sum) purchases of land and buildings, costs should be allocated on the ratio of fair market values of the land and buildings....
View Full Document

This note was uploaded on 06/06/2010 for the course ACCOUNTING ac505 taught by Professor Khan during the Spring '10 term at DeVry Fremont.

Ask a homework question - tutors are online