05-01-2010, 05:19 PM
Under protection provides underground facilities for companies desiring off-site storage of sensitive documents, computer records, and other items. They have developed a sophisticated surveillance and security system which they initially used in their own facilities, and have recently started to market elsewhere as well.
The underground storage facilities are made from natural caves in some instance(reinforced and modified as appropriate) and from excavations of natural rock formations in others. The land was purchased over ten years ago for a total of $2.5 million. The modifications have cost approximately $15 million more. The company has never depreciated its storage facilities because the market value of the property has continued to rise. Presently, the market price is between $30 and $40 million.
Tom Carr, a new accounting manager, questioned this depreciation policy. Ken Hines, the controller, has told him that he needn't worry about it. For one thing, he says, this is really a special form of land account, which should not be depreciated at all. For another, this is a privately held company, and so they don't need to worry about misleading investors. All the owners know and approve the depreciation policy.
What are the ethical issues in this situation?
The underground storage facilities are made from natural caves in some instance(reinforced and modified as appropriate) and from excavations of natural rock formations in others. The land was purchased over ten years ago for a total of $2.5 million. The modifications have cost approximately $15 million more. The company has never depreciated its storage facilities because the market value of the property has continued to rise. Presently, the market price is between $30 and $40 million.
Tom Carr, a new accounting manager, questioned this depreciation policy. Ken Hines, the controller, has told him that he needn't worry about it. For one thing, he says, this is really a special form of land account, which should not be depreciated at all. For another, this is a privately held company, and so they don't need to worry about misleading investors. All the owners know and approve the depreciation policy.
What are the ethical issues in this situation?
