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Ethical Decision Making: Property, Plant and Equipment

Andrea Pafko, corporate comptroller for Nicholson Industries, is trying to decide how to present "Property, plant and equipment" in the balance sheet. She realizes that the statement of cash flows will show that the company made a significant investment in purchasing new equipment this year, but overall she knows the company's plant assets are rather old. She feels that she can disclose one figure titled "property, plant, and equipment, net of depreciation," and the result will be a low figure. However, it will not disclose the age of the assets. If she coose to show the cost less accumulated depreciation, the age of the assets will be apparent. She proposes the following.

Property, plant and equipment, net of depreciation $10,000,000

rather than

Property, pant, and equipment $50,000,000

Less: Accumulated depreciation (40,000,000)

Net book value $10,000,000

a) What are the ethical issues involved?
b) What should Pafko do?

Solution Preview

The ethical issue here is a lack of transparency. The comptroller is acting in a way that is intended to deceive, or hide something from investors. That being said, her treatment will do very little to hide ...

Solution Summary

The solution discusses an ethical decision making process regarding "Property, plant and equipment."