Question
ABC Company's main product, motor components, is seeing a decline in sales. To lower the expenditure of depreciation, Tom, the controller, receives an order from
ABC Company's main product, motor components, is seeing a decline in sales. To lower the expenditure of depreciation, Tom, the controller, receives an order from President James to extend the life of an asset. When a processing line of motor components was bought in June 2020 for $50,000, it was predicted that it would last for ten years and have a residual value of $8,000. Based on that premise, depreciation has been documented for two years. James requests that the straight-line approach be maintained, and the anticipated life be adjusted to a total of 12 years. Tom is reluctant to implement the modification since he thinks it is immoral to boost earnings in this way.
a) Who are the stakeholders involved in this scenario?
b) Using the facts as a guide, determine the total accumulated depreciation that has been documented over the course of two years.
c) Describe how increasing an asset's usable life will boost profit. Is this a morally dubious move, or is the president using savvy business practice to extend the asset's life?
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