Tones Company purchased a warehouse in a downtown district where land.docx
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Tones Company is debating the cost allocation of a newly purchased warehouse between land and building, with Gerald Carter advocating for a high allocation to the warehouse to reduce taxable income, while Wilma Ankara emphasizes recognizing the land's increasing value. The ethical implications include potential legal issues and job losses for those involved in unethical practices, while indirect stakeholders like employees and customers might suffer from loss of goodwill and trust. Ultimately, the conclusion is that Gerald's suggestion to inflate the building's value for tax savings is unethical, and the company should focus on legitimate tax planning strategies.
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Tones Company purchased a warehouse in a downtown district where land.docx
- 1. Tones Company purchased a warehouse in a downtown district where land values are rapidly increasing. Gerald Carter, controller, and Wilma Ankara, financial vice president, are trying to allocate the cost of the purchase between the land and the building. Noting that depreciation can be taken only on the building, Carter favors placing a very high proportion of the cost on the warehouse itself, thus reducing taxable income and income taxes. Ankara, his supervisor, argues that the allocation should recognize the increasing value of the land, regardless of the depreciation potential of the warehouse. Besides, she says, net income is negatively impacted by additional depreciation and will cause the company's stock price to go down. Who are the direct and indirect stakeholders and how are they affected? Is what Gerald is suggesting ethical? Solution Direct stakeholders: Finance controller, financial vice president and other finance staff who are involved in the fixed asset valuation who are directly involved in the process, top management of the company. It will affect the direct stakeholders in the following way: 1. Going against his / her professional ethics and morals 2. Legal issues which a person can face for saving taxes and window dressing the books of accounts 3. Loss of job Indirect stakeholders: Other employees of the organisation, customers, suppliers and the company as a whole. It will affect the indirect stakeholders in the following way: 1. Loss of company goodwill 2. Loss of consumers 3. Overall affect may lead to employees using their job Gerald is suggesting to inflate the value of the building so that they can save tax which is not ethical. The company should opt for tax planning and not tax saving through illegal means.