Ethical Issue. can I get the answers to this/these question (s)? hapter 7 A Ethi

Question

Ethical Issue. can I get the answers to this/these question (s)?

hapter 7 A Ethical Issue Dellroy National Bank purchased land and a building for the lump sum of $6 million. To get the maximum tax deduction, the bank's managers allocated 80% of the purchase price to the build- ingand only 20% to the land. A more realistic allocation would have been 60% to the building and 40% to the land. Requirements 1. What is the ethical issue in thildsituation? 2. Who are the stakeholders? What are the possible consequences to each? 3. Analyze the alternatives from the following standpoints: (a) economic, (b) legal, and (c) ethical. 4. What would you do? How would you justify your decision? Focus on Financials Apple Inc.

Explanation / Answer

1. By allocating 80% cost to building which is a depreciable asset instead of 60% the value of depreciable asset would be overstated in Balance sheet and crosspondingly more than normal depreciation would be claimed in Profit and Loss statement thereby understating profits and paying low amount of Tax to the government.

2. Stakeholders are the persons or entity which gets effected by organisation's poilicies objectives and most importantly by their actions. They may or may not have direct vested intrest in the organisation. In the case cited above the shareholders of the company, Tax department (Government) and creditors (banks from whom loan might be taken for purchasing assets) are the primary stakeholders involved.

Shareholders- By showing understated profits due to increased depreciation expense their dividend pay-out will be directly impacted.

Tax Department- Paying of taxes below normal would create possible litigations with them and which could in effect increases litigation expenses in future. Also unethical tax plaaning is not socially accepted and in long term may affect image of company.

Creditors- By showing strong balance sheet on the basis of overstated assets company might obtained loan with a collateral not backing the loan amount.

3. Economic- Recognition of value of building on fair market value.

Legal- Recognition at fair market value i.e at 60% and accordingly claiming depreciation expense as per this cost and paying actual tax amount to government.

Ethical- Not understating profits of the company just to pay low tax and thereof being a responsible tax complaint.

4. Recognition of cost of building at fair market value and thereby paying tax according to it so as to avoid possible litigation in future which might in effect increase revenue expenditure of the company and also create a question mark on image of company

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