Cost of Land versus Building – Ethics

  1. What stakeholder interests are in conflict?

Gerald Carter and Wilma Ankara are among the company’s stakeholders, and both of them portray conflicting interest on decisions concerning the company. The interest of company’s controller, Gerald Carter is to reduce taxable income and income taxes by placing a high proportion of the cost on the warehouse. Contrary, the financial vice president, Wilma Ankara has the opinion that cost allocation should consider the increasing value of the land instead of the warehouse’s depreciation. Moreover, due to the negative impact of the additional depreciation on the net income, the prices of the company’s stock will decline (Kieso, Weygandt & Warfield, 2012).

  1. What ethical issues does Carter face?

The ethical issues revolve on the decision of whether to use the fair market value to allocate the cost of the purchase between land and building or whether to determine the cost allocation considering the negative effect on the net income. Carter’s ethical dilemma is on whether the financial vice president will accept his position or she will reject it. The other ethical issue Carter faces is exhibiting dishonesty. Carter provides inaccurate information, and this will mislead stockholders and potential investors. Therefore, he should provide honest financial reports without prioritizing his interest.

  1. How should these costs be allocated?

It is important to note that the allocation of the costs should consider the ratio of a fair market value of the land and building. Besides, using a qualified professional to undertake a commercial property evaluation, the costs would be allocated after computing values based on the current market conditions (Kieso, Weygandt & Warfield, 2012).

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2012). Intermediate Accounting. Hoboken, NJ: Jonh Wiley & Sons.

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