Plant Assets, Natural Resources > Ethical Issue 9-1 Western Bank & Trust purchased land and a building for the lump sum of $3,000,000. To get the maximum tax deduction, Western allocated 90% of the purchase price to the building and only 10% to the land. A more realistic allocation would have been 70% to the building and 30% to the land. Requirements 1. Explain the tax advantage of allocating too much to the building and too little to the land. 2. Was Western's allocation ethical? If so, state why. If not, why not? Identify who was harmed. > Fraud Case 9-1 Jim Reed manages a fleet of utility trucks for a rural county government. He's been in his job for 30 years, and he knows where the angles are. He makes sure that when new trucks are purchased, the residual value is set as low as possible. Then, when they become fully depreciated, they are sold off by the county at residual value, Jim makes sure his buddies in the construction business are first in line for the bargain sales, and they make sure he gets a little something back. Recently, a new county commissioner was elected with vows to cut expenses for the taxpayers. Unlike other commissioners, this man has a business degree, and he is coming to visit Jim tomorrow. Requirements 1. When a business sells a fully depreciated asset for its residual value, is a gain or loss recognized? 2. How do businesses determine what residual values to use for their various assets? Are there "hard and fast" rules for residual values? 3. How would an organization prevent the kind of fraud depicted here