Under Protection provides underground storage facilities for companies desiring off-site storage of sensitive documents, computer records, and other items. They have developed a sophisticated surveillance and security system which they initially used in their own facilities, and have recently started to market elsewhere as well.

Under Protection provides underground storage facilities for companies desiring off-site storage of sensitive documents, computer records, and other items. They have developed a sophisticated surveillance and security system which they initially used in their own facilities, and have recently started to market elsewhere as well.

The underground storage facilities are made from natural caves in some instances (reinforced and modified as appropriate) and from excavations of natural rock formations in others. The land was purchased over ten years ago for a total of $2.5 million. The modifications have cost approximately $15 million more. The company has never depreciated its storage facilities because the market value of the property has continued to rise. Presently, the market price is between $30 and $40 million.

 

Betsy Brantley, a new accounting manager, questioned this depreciation policy. Will Gray, the controller, has told her that she needn't worry about it. For one thing, he says, this is really a  special form of Land account, which should not be depreciated at all. For another, this is a privately held company, and so they don't need to worry about misleading investors. All the owners know about and approve the depreciation policy.

Required:

What are the ethical issues in this situation?

You have recently started to work for Storry Malcom, manufacturers of cemetery markers and monuments. During your first month at work, you inadvertently recorded as revenue, about $4,000 of prepayments from Budger Company. The financial statements had been released within the company when you discovered your error. The month-end closing had not been completed, however, and you were able to correct the accounts without incident.

Required:

Prepare a short note to accompany the re-released financial statements explaining the mistake.

                                        

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