Question
EHT Ltd. is a mining company listed at NYSE. The company recently announced a change in depreciation policy, from a straight-line method to an accelerated
EHT Ltd. is a mining company listed at NYSE. The company recently announced a change in depreciation policy, from a straight-line method to an accelerated depreciation method. Analyses show that such an accounting change results in a reduction of USD15 millions on EHTs annual earnings. The companys annual meeting is to be held soon and the president is concerned, expecting to be attacked strongly by a dissident group of shareholders who will claim that the new depreciation policy gives rise to a depreciation expense that is excessive that is, the companys depreciation policy seriously understates annual earnings per share, possibly causing the shares market price to be artificially low. The president has asked you to help prepare a defense against the expected attack on the companys depreciation policy change. Hint: Apply two financial accounting theories to explain.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started