At the very beginning of 2017, Safe Company purchased equipment for $54 million to be used in the manufacturing of a new line medical safety equipment. The equipment was estimated to have a 10-year service life and no residual value. The straight-line depreciation method was used to measure depreciation for the years 2017 and 2018.

Late in 2019, it became apparent that sales of the medical equipment line were significantly below expectations. The company decided to continue production for two more years (2020 and 2021) and then discontinue the line. At that time, the equipment will be sold for minimal scrap values.

Amy Sullivan, the companys chief executive officer (CEO), asked the controller, Bob Best, to determine the appropriate treatment of the change in service life of the equipment. In 2019, Bob determined that there has been an impairment of value requiring an immediate write-down of the equipment of $12 million. The remaining book value would be depreciated over the equipments revised service life.

The CEO, Amy, does not like Bobs conclusion because of the effect it would have on the 2019 income. Looks like a simple revision in service life from 10 years to 5 years to me, said Amy. Lets go with it that way, Bob.

1. Identify all the stakeholders (those impacted by this situation).

2. Include possible courses of action and implications of each action

3. Indicate what course of action Bob should take and why