Many corporations use cost after subtracting accumulated depreciation and impairment losses as a base for measuring...

Transcribed Image Text:

Many corporations use cost after subtracting accumulated depreciation and impairment losses as a base for measuring their property, plant and equipment (while some use fair value for this measurement purposes). Requirement: < 1) Explain why corporate managers prefer to measure property, plant and equipment using the cost model rather than measuring the assets based on fair value. Discuss if the depreciation expense represents an accounting number that could be relatively easily manipulated as part of the corporate manager's strategy of earning management, and how would a manager do this and why? Many corporations use cost after subtracting accumulated depreciation and impairment losses as a base for measuring their property, plant and equipment (while some use fair value for this measurement purposes). Requirement: < 1) Explain why corporate managers prefer to measure property, plant and equipment using the cost model rather than measuring the assets based on fair value. Discuss if the depreciation expense represents an accounting number that could be relatively easily manipulated as part of the corporate manager's strategy of earning management, and how would a manager do this and why?