American Movieplex, a large movie theater chain, lease most of its theater facci

Question

American Movieplex, a large movie theater chain, lease most of its theater faccilities. In conjunction with recent operating leases, the company spent $28 million for seats and carpeting. The question being discussed over berakfast on Wednesday moringin was the length of the depreciation period for these leasehold improvements. The company controller, sarah keene, was suprised by the suggession of Larry Person, her new assistant.

Keene: Why 25 years? we've never depreciated leasehold improvements for such a long period.

Person: I notice that in my review of back records. but during our expansion to the midwest, we don't need expenses to be any higher than necessary

Keene: But isn't that a pretty rosy estimate of these assets' actual life? Trade publications show an average depreciation period of 12 years.

Required:

1)How would increased the depreciation period affect Amerian Movieplex's Income?

2)Does revising the estimate pose an ethical dilemma?

3) Who would be affected if Person's suggestion is followed?

Explanation / Answer

1. Increase in depreciation period would decrease the depreciation chargeable and ihemce increase the income.

2. Yes . Depreciation period should reflect the useful life of the assets. Depreciating the asset for longer period would present incorrect financial results

3. The management and shareholder will benefit seeing the rosey pictures

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