Reference no: EM132856728

Question - Demate Company purchased a 20-year lease, paying 450000 for it at the time of purchase. Demate amortized the lease on the straight-line basis and charge expenses for 27500 each year for 12 years. During the 13th year, an operating loss was incurred to the extent of 20000 by including 27500 as lease amortization expense. If the 20000 loss was closed to retained earnings, that account would be almost depletes after the regular dividend was declares. Demate therefore decided to charge nothing off the lease for the current year, thereby showing a 7500 net income. Management called upon you to approve the loan. What do you suggest in view of the past amortization policy of the company.