Dieker Containers is suffering declining sales of its principal product, non-biodegrade able plastic cartons. The president, Edward
Question:
Dieker Containers is suffering declining sales of its principal product, non-biodegrade able plastic cartons. The president, Edward Mohling, instructs his controller, Betty Fetters, to lengthen asset lives to reduce depreciation expense. A processing line of automated plastic extruding equipment, purchased for €3.1 million in January 2020, was originally estimated to have a useful life of 8 years and a residual value of €300,000. Depreciation has been recorded for 2 years on that basis. Edward wants the estimated life changed to 12 years total, and the straight-line method continued. Betty is hesitant to make the change, believing it is unethical to increase net income in this manner. Edward says, “Hey, the life is only an estimate, and I’ve heard that our competition uses a 12-year life on their production equipment.”
Instructions
a. Who are the stakeholders in this situation?
b. Is the change in asset life unethical, or is it simply a good business practice by an astute president?
c. What is the effect of Edward Mohling’s proposed change on income before taxes in the year of change?
A person, group or organization that has interest or concern in an organization. Stakeholders can affect or be affected by the organization's actions, objectives and policies. Some examples of key stakeholders are creditors, directors, employees,...
Step by Step Answer:
Accounting Principles
ISBN: 978-1119419617
IFRS global edition
Authors: Paul D Kimmel, Donald E Kieso Jerry J Weygandt