Ethical Responses

Question 1

Discuss any ethical and accounting issues that the accountant should consider when
determining the depreciation method, the estimates of useful life and the residual value for the equipment

Answer 1

provided an in-depth discussion around the decision by the owner to inflate the profit of the business by choosing the straight-line
depreciation method, which would result in less depreciation and therefore greater net profit and non-current assets

The choice of method, while in this scenario resulting in a higher profit, is just one factor. The owner of the business has also provided a residual value and useful life that will significantly increase the net profit. There
are ethical implications around the owner’s decision to potentially inflate profit in order to increase the valuation of the business for potential buyers.

referred to the conflict that arises between the expertise of the accountant and the
business owner. While the accountant would have a standard useful life and residual value, the owner may have a better understanding of how long the refrigeration equipment will be used by the business and how
much they have been able to sell the equipment for in the past