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Marcon Properties Ltd. is a diversified private company that owns approximately 60 retail properties that the company has operated as discount department stores. These stores are small, stand-alone properties that Marcon owns outright, although most properties are heavily mortgaged. In 20X1, the company decided, due to increasing losses from retail operations, that all discount department stores should be closed and properties converted to rental units. This process was successfully started in 20X1, with 22 of 60 properties signed to long-term rental agreements with tenants. It is now the end of 20X1, and all retail operations have ceased. There are 38 properties currently sitting vacant. Marcon believes that it can successfully lease the remaining properties over the next 9 to 23 months. For the 20x1 fiscal year, an accounting policy issue has come up in relation to the vacant properties whether the properties should be depreciated during the period they sit vacant prior to rental. Those in favour of recording depreciation point out that the properties continue to deteriorate during the period in which they are idle and that depreciation is meant to allow for obsolescence, not just wear and tear. Those who favour suspension of depreciation point out that amortization should be matched with the rental revenue that the properties will generate in the future. Marcon is reporting a positive net income in 20X1, generated from a variety of other activities. Required: Indicate which accounting policy you would expect to be adopted in the following independent circumstances. Note that in some circumstances, the company will be indifferent as to the policy chosen. Circumstances 1. Marcon is a public company and wants to show a smooth upward earnings trend. Marcon has a team of senior managers who are compensated with a cash bonus based on a percentage of 2 annual net income Senior managers will choose the accounting policy. Policy

Marcon Properties Ltd. is a diversified private company that owns approximately 60 retail properties that the company has operated as discount department stores. These stores are small, stand-alone properties that Marcon owns outright, although most properties are heavily mortgaged. In 201, the company decided, due to increasing losses from retail operations, that all discount department stores should be closed and properties converted to rental units. This process was successfully started in 201, with 22 of 60 properties signed to long-term rental agreements with tenants. It is now the end of 201, and all retail operations have ceased. There are 38 properties currently sitting vacant. Marcon believes that it can successfully lease the remaining properties over the next 9 to 23 months. For the 201 fiscal ycar, an accounting policy issue has come up in relation to the vacant properties-whether the properties should be. depreciated during the period they sit vacant prior to rental. Those in favour of recording depreciation point out that the properties continue to deteriorate during the period in which they are idle and that depreciation is meant to allow for obsolescence, not just wear and teat. Those who favour suspension of depreciation point out that amortization should be matched with the rental revenue that the properties will generate in the future. Matcon is reporting a positive net income in 201, generated from a variety of other activities. Required: Indicate which accounting policy you would expect to be adopted in the following independent circumstances. Note that in some circumstances, the company will be indifferent as to the policy chosen. For the 201 fiscal year, an accounting policy issue has come up in relation to the vacant properties - whether the properties should be depreciated during the period they sit vacant prior to rental. Those in favour of recording depreciation point out that the properties continue to deteriorate during the period in which they are idle and that depreciation is meant to allow for obsolescence, not just wear and tear. Those who favour suspension of depreciation point out that amortization should be matched with the rental revenue that the properties will generate in the future. Marcon is reporting a positive net income in 201, generated from a variety of other activities. Required: Indicate which accounting policy you would expect to be adopted in the following independent circumstances. Note that in some circumstances, the company will be indifferent as to the policy chosen

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