Case 9.1A - asset to determine if it is reasonable 3 From...

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Jason Wilcox Case 9.1A Accounting Spring 2009 1. If Gillespie decides to go with the advice of CEO Suzanne Bedell and increases the useful life from 5 years to 10 years there would be no effect on cash flow. There would be a change in net income, and would increase the net income because the life of the equipment is being spread out a longer period of time and the value is not dropping as much each year. 2. Estimating the useful life and residual values of assets are the responsibility of the company’s management. A company normal base’s there useful life off of past experience. However the company has to be truthful in basing there estimated life to remain ethical, and in large businesses an auditor will look at the estimated life of an
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Unformatted text preview: asset to determine if it is reasonable. 3. From and ethical point Gillespie needs to be careful because by extending the life of the specialty machinery he needs to keep the life remaining within reasonable depreciation. By doubling the useful life from 5 years to 10 years Gillespie might be stretching the useful life to much. If Print Technologies is a large company then the auditor might also question the decision of doubling the life of the equipment. Also they need to keep in mind that technology is always changing and the value of equipment may go down substantially if there is a new more efficient product that comes out. This would then be recorded as impairment loss....
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