Fillups Company: Ethics in Accounting Choices
Fillups Company has been in the business of exploring for oil reserves. During
19×1, $10 million was spent drilling wells that were dry holes. Under GAAP,
Fillups has the option of accounting for these costs by the successful efforts
method or the full cost method. Under successful efforts, the $10 million would
be expensed once it was determined that the wells were dry. Under full cost,
the $10 million would be capitalized. It would not be expensed until the oil
from successful wells is extracted and sold. Fillups decides to use the full
cost method because of its positive effect on the bottom line.
a. What are the ethical considerations implied in the
rationale for Fillups decision? Explain.
b. Do you believe that an accounting alternative should be
selected solely on the basis of financial statement effects? Discuss.
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