Home / Questions / CASES 8 Estimating a Future Expense The cost associated with mothballing a nuclear power p...
CASES 8. Estimating a Future Expense' The cost associated with mothballing a nuclear power plant at the end of itsom usefu1 cpan y life, approximately 20 years in the future, will be paid by the utility when the plant is obsolete at the end of the 20 year period. When should the expense be recognized for this expenditure? Current utility users receive the benefit of this plant. Do accounting rules require them to pay the cost in terms of increased utility rates by including the expense of the future mothballing in their rates, or should the expense be delayed for 20 years, until the cash is actually paid out? Required: a. According to the philosophical guidelines of utilitarianism, the accoun-tant should produce financial statements of high quality so the reports are useful to all stakeholders. How should an accountant apply the principles of utilitarianism to decide how this expense should be recorded? b. If you choose to act in a manner consistent with the principles of deontology which requires the accountant to "do the right thing for the right reason", what is the right thing to do? What is the right reason for your decision? c. To record an expense, the accountant must be able to estimate the amount of the expenditure. Will it be difficult to estimate an expense to be paid 20 years in the future? d. If you choose to recognize the expense after 20 years, what categorica imperative does this support? e. If you choose to recognize the expense over the 20 years when th power plant will be used to generate electricity, what categorical impel alive does this support?
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