In July 2003, the Medical College of Ohio (MCO) (now part of the University of Toledo) approved its first deficit budget of $3.4 million, but no programs or faculty members were cut.
MCO announced a ‘‘mission-based’’ study of all programs and an examination of how financially viable they are, as well as how essential they are.
MCO was projected to lose money because of recognizing depreciation expense. Without depreciation expense, MCO would have a $5 million profit for fiscal year 2004.
In recognizing depreciation expense, MCO was adopting a new accounting standard passed in 2000 that requires colleges (universities) to account for depreciation. Many colleges adopted the new standard by disclosing in a note in their audited financial statements, not their operating budgets.
Required
a. In your opinion, should colleges and universities recognize depreciation expense? Comment.
b. Is recognizing depreciation expense in a note equivalent to recognizing depreciation expense in the statements? Comment.
c. Should the standard be explicit on how a college or university recognizes depreciation expense? Comment.