Discussion:
Field Company purchased a warehouse in a downtown district where land values are rapidly increasing. Adolph Phillips, controller, and Wilma Smith, financial vice president, are trying to allocate the cost of the purchase between the land and the building. Phillips, noting that depreciation can be taken only on the building, favors placing a very high proportion of the cost on the warehouse itself, thus reducing taxable income and income taxes. Smith, his supervisor, argues that the allocation should recognize the increasing value of the land, regardless of the depreciation potential of the warehouse. Besides, she notes, net income is negatively impacted by additional depreciation and causes the companys stock price to go down. Discuss what stakeholder interests are in conflict because of the disagreement between the controller and financial vice president. Also, discuss which method you would choose for allocating the costs between the land and the building.