Casper Chemical Recently Acquired a Building Located on Two Acres

question 21

Essay

Casper Chemical recently acquired a building located on two acres of land for a lump-sum price of $3.2 million. In your job as assistant controller, you determined the allocation of the price using the relative fair values to be $1 million and $2.2 million for the land and building, respectively. When you reported these initial values to Jake Reese, the company's controller, he told you to change the allocation to $1.5 million for the land and $1.7 million for the building. When you asked him why the change, he explained that the company is having a difficult time meeting profitability goals and that his proposed allocation will help the bottom line for future years.
Required:
1. How will the controller's proposed allocation help the bottom line in future years?
2. Discuss the ethical dilemma faced by the assistant controller.

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Definitions:

Discounted Present Value

A method of valuing a future amount of money by applying a discount rate to adjust for time and risk.

Time Period

A specific duration for which economic data is measured or observations made.

Time-Value

The idea that having money now is more valuable than having the same sum in the future because of the potential to earn more over time.

Discounting

The process of determining the present value of a payment or a stream of payments that is to be received in the future.