Question

The Managing Director of the chosen company instructs the accountant to lengthen assets lives to reduce depreciation expense. Equipment purchased in January 2013, was initially estimated to have a user experience of 8 years. The Managing Director wants the estimated life changed to 15 years. The accountants hesitant to make the change, believing it is unethical to increase profit in this manner. However, Managing Directors says him,‘The life is only an estimate, and I have heard that our competitors use 15-year life on their equipment.’Is The proposed change in asset life unethical, or is it merely good business practice by an astute Managing Director? Explain.

Answer 1

It is unethical to change the life of the asset by an astute Managing Director just to increase the profits. The life of the asset which was purchased on January 2013 was initially assigned the life of 8 years. If the life of the machine has been changed to 15 years just to increase the profits then it is unethical due to the following reasons

1) it will also reduce the profits of the company after 8 years because after 8 years the asset will become outdated and worn out which will in turn increase the cost to maintain it

2) It is also not rational as the product produced by the outdated asset will also not of good quality and also it may produce the damage products.