(Practice question)

Sales are down for Cruddy Container Company mainly due to declining sales of their main product line of non-biodegradable plastic cartons. The president of the company tells the controller (you) to lengthen asset lives from 8 years to 12 years to reduce depreciation expense and improve net income.

The processing equipment was purchased in January 2018 for $3 million, and was originally estimated to have a useful life of 8 years with a salvage value of $200,000. Depreciation has been recorded for 2 years so far using the straight line method.

The controller (you) expresses concern to the president about changing the asset life, regarding it as unethical to increase net income in this way. The President responds: Hey, the life is only an estimate, and Ive heard that our competitors use a 12 year life on their equipment..

Does the presidents order to increase the length of asset lives from 8 to 12 years pose an ethical dilemma for the controller?

What would you (as the controller) say to the president, your boss in this situation?