B. LEASES

Asian Movieplex, a large movie theater chain, leases most of its theater facilities.In conjunction with recent leases, the company spent 28 million for seats and carpeting.The question being discussed over breakfast on Wednesday morning was the length of the depreciation period for these leasehold improvements.The company controller, Sarah Rajan, was surprised by the suggestion of Larry Wong, her new assistant.

Rajan:Why 25 years?We've never depreciated leasehold improvement for such a long period.

Wong:I noticed in my review of back records.But during our expansion, we don't need expenses to any higher than necessary.

Rajan:But isn't that a pretty rosy estimate of these assets' actual life?Trade publications show an average depreciation period of 12 years.

Required:

1.How would increasing the depreciation period affect Asian Movieplex' Income?

2.Does revising the estimate pose an ethical dilemma?

3.Who would be affected if Wong's suggestion is followed?