How should the costs should be allocated

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Reference no: EM13677311

JoJo Company purchased a warehouse in the downtown of a major city that recently went through a significant revitalization leading to increased land values. Tia Smith, controller, and Anthony Barrett, vice president of finance, are trying to allocate the purchase cost between the land and building. Since only the building can be depreciated, Smith favors placing a very high proportion of the cost on the warehouse, thereby reducing the taxable income and income taxes. Barrett, her supervisor, argues that the allocation should instead recognize the increasing value of the land, regardless of the depreciation potential of the warehouse. Anyway Barrett indicates, net income will be negatively impacted by additional depreciation and will potentially cause the company's stock price to go down.

What ethical issues, if any does Smith face in this scenario? In your opinion, how should the costs should be allocated?

Reference no: EM13677311

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