At the beginning of 2011, the healthy life food company purchased equipment for 42M to be used in the manufacture of a new line of gourmet frozen fods. the equimpent was estimated to have a 10 year service life and no residual value. the straight line depreciation method was used to measure deprecation for the 2011 and 2012 late in 2013 it became apparent production for 2 more years(2014 and 2015) and then discontinue the line at theta time, the equipment will be sold for minima scarp value.
The controller Heather Meyer was asked by harvey Dent the company’s chief exe officer to determine the appropriate treatment of the change in service life of the equipment, Heather determined that there has been an impairment of value requiring an immediate write-down of the equipment. Of 12900,000 The remaining book value would then be depreciated over the equipment revised service life.
The CEO doesn’t like Heather's conclusion because of the effect it would have on 2013 income, "Looks like a simple revision in the service life from 10 years to 5 years to me" Dent concluded "Lets go with that way, Heather"
Required
1- What is the difference in before-tax income between the CEO'S and Heather's treatment of the sitatuion?
2-Discuss Heather Meyer's ethical dilemma