Answer
a.In this case, the shareholders that should be considered include the government and shareholders. The government should be informed because the treatment of the expense impacts the nuclear plant’s tax liability. Shareholders should be informed because the expense can potentially reduce the entity’s net earnings.
b.The foremost ethical issue in this case relates to the accounting treatment for the “mothballing expense.”
c.First, the expense can be treated as a period cost. This would mean that it is divided between accounting periods. Alternatively, it can be treated as a period cost attached to products.
d.The first alternative of treating the expense as a period cost means that its impact on the revenue will not be considered. The second alternative means that the expense will be divided among different accounting periods.
e.The periodicity principle would be ideal in this circumstance. Consequently, there would be no need to wait for the nuclear plant’s life to come to an end to account for the expense. The nuclear plant will be used for twenty years, so it is logical that the expense is spread out over twenty years.
Work Step by Step
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