Under protection provides underground storage facilities desiring off-site storage of sensitive documents, computer records, and other items. They have developed a sophisticated surveillance and security system which they initially used in their own facilities, and have recently started to market elsewhere as well. The underground storage facilities are made from natural caves in come instances (reinforced and modified as appropriate) and from excavations of natural rock formations in others. The land was purchased over ten years ago for a total of $2.5 million. The modifications have cost approximately $15 million more. The company have never depreciated its storage facilities because the market value of the property has continued to rise. Presently, the market price is between $30 and $40 million.
Tom Carr, a new accounting manager, questioned the depreciation policy. Ken Hines the controller has told him that he needn't worry about it. For one things, he says, this is really a special form of land account, which should not be depreciated at all. For another, this is a privately held company, and so they don't need to worry about misleading investors. All the owners know about and approve the depreciation policy.

What are the ethical issues in this situation?

The ethical issue in this situation is THE TRUTH?
Accounting is NOT an exact science.
It is an exceptional system of approximations.
Balance Sheets based on the
historical cost system are not worth the paper that they are published on.
The Theory of THE ESTIMATED REPLACEMENT VALUE OF ASSETS
needs to be applied, for some sort of sanity.

What a wonderful quote!
" Presently, the market price is between $30 and $40 million."
What is it 30 or 40?
Where have all the expert valuers
gone?
The mind boggles!

What do you mean it is the truth?
What are the ethical problems?

Ethics Case
BYP8-6 You are the assistant controller in charge of general ledger accounting at Riverside
Bottling Company. Your company has a large loan from an insurance company. The loan agreement requires that the company's cash account balance be maintained at $200,000 or more, as reported monthly. At June 30 the cash balance is $80,000, which you report to Gena Schmitt, the financial vice president. Gena excitedly instructs you to keep the cash receipts book open for one additional day for purposes of the June 30 report to the insurance company. Gena says, “If we don't get that cash balance over $200,000, we'll default on our loan agreement. They could close us down, put us all out of our jobs!” Gena continues, “I talked to Oconto Distributors (one of Riverside's largest customers) this morning. They said they sent us a check for $150,000 yesterday. We should receive it tomorrow. If we include just that one check in our cash balance, we'll be in the clear. It's in the mail!”

Instructions
(a) Who will suffer negative effects if you do not comply with Gena Schmitt's instructions? Who
Will suffer if you do comply?
(b) What are the ethical considerations in this case?
(c) What alternatives do you have?