ABC Company purchased a factory building. The company controller, Alex DJ, is in the process of allocating the lump-sum purchase price between land and building. Alex suggests to the company’s chief financial officer, Luisa Prince, that they fudge a little by allocating a disproportionately higher share of the price to land. Alex reasons that this will reduce depreciation expense, boost income, increase their profit-sharing bonus, and hopefully, increase the price of the company’s stock. Luisa has some reservations about this because the higher reported income will also cause income taxes to be higher than they would be if a correct allocation of the purchase price were made.

Is there a violation in the asset’s measurement principle? What are the ethical issues? What stakeholders’ interests are in conflict?

Answer rating: 100% (QA)

The answer to the first part of the question is Yes There is a viol... View the full answer