Your boss comes to you and asks you to defer recognizing certain expenses in thi

Question

Your boss comes to you and asks you to defer recognizing certain expenses in this period by capitalizing the expenditures as a depreciable asset. It has been rumored that your branch of the company has been doing poorly and is on an internal list for possible closings. A closing of your branch would mean your boss, yourself and 20 others would lose their jobs. However, a good quarter could mean that another branch will be closed instead. You know the expenditure is not an asset. Required: Assume the accountants and managers at the other branches on the list are faced with the same dilemma.

If it turns out that the branch will not be closed only that the manager may or may not receive a bonus, What actions do you believe they will take regarding this problem? What type of assumption(s) are you making about them in predicting their behavior?

Explanation / Answer

Captalizing the expenditure will create problems only for the branch. As sooner or later company would get to know about the same anomaly and would take approppriate action on the entire branch.

There is a fear amongst everyone which forces them to take such steps.

the possiblity of not closing branch will happen only if manager do not get bonus is on the assumption that they will try their best to revive the branch again.

if branch turns out profitable once again in near future then the jobs can be saved

A clear plan needs to be made on the revival with strong implementation of action items.

else a wrong plan will surely lead to closure of branch

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