Solinger Limited has just hired a new CFO. The CFO has reviewed the accounting policies relating to depreciation and has suggested to the audit committee that the straight-line method that is currently in use should be changed to a diminishing-balance approach since most of the depreciable assets are relatively new. The company is considering the possibility of "going public" and selling an issue of new shares on a stock exchange to finance its expansion.

Instructions

Write a short memo to the audit committee explaining:

(a) The effect that this change will have on the income statement and statement of financial position in the current year, prior year, and future years;

(b) Your opinion as to whether this change is appropriate;

(c) Why the CFO proposed the change; and

(d) Whether the committee needs any additional information before making a decision to support or reject the CFO's proposal.