Question 5 4 marks Non-current assets - AASB 116 JP FI-FI a publicly listed DVD rental store chain amended its depreciation charges for DVDs by extending their useful lives from 12 months to 48 months. This had the effect of adding $5 million to the company's profits, an increase of nearly 20% for the year. After this event, a reporter published a report in the news and strongly criticised this practice and considered it as an unethical practice. This resulted in the share price of the company to drop significantly. Required You are required to refer to AASB 116 (property, plant and equipment) and answer the following questions: 1. Is this practice, i.e., changing the method of depreciation, allowed/legal in Australia under the AASB 116? Explain this by referring to AASB 116 (1 mark). 2. Refer to AASB 116 and explain how the management team could justify this practice and provide justifiable reasons the shareholders? You are required to provide your answer by referring to AASB 116 and also possible circumstances of the company. List two reasons that could be provided by the management team to the shareholders (2 marks). 3. Why this practice is considered as an unethical one by the reporter? How does the reporter justify his report to his audience? In your answer your need to explain under what circumstances this practice could be considered as unethical (1 mark). Question 5 4 marks Non-current assets - AASB 116 JP FI-FI a publicly listed DVD rental store chain amended its depreciation charges for DVDs by extending their useful lives from 12 months to 48 months. This had the effect of adding $5 million to the company's profits, an increase of nearly 20% for the year. After this event, a reporter published a report in the news and strongly criticised this practice and considered it as an unethical practice. This resulted in the share price of the company to drop significantly. Required You are required to refer to AASB 116 (property, plant and equipment) and answer the following questions: 1. Is this practice, i.e., changing the method of depreciation, allowed/legal in Australia under the AASB 116? Explain this by referring to AASB 116 (1 mark). 2. Refer to AASB 116 and explain how the management team could justify this practice and provide justifiable reasons the shareholders? You are required to provide your answer by referring to AASB 116 and also possible circumstances of the company. List two reasons that could be provided by the management team to the shareholders (2 marks). 3. Why this practice is considered as an unethical one by the reporter? How does the reporter justify his report to his audience? In your answer your need to explain under what circumstances this practice could be considered as unethical (1 mark)
