As the trusted CPA for the company the first thing to consider is on how to treat the principal amount of the mortgage. As per generally accepted accounting standards the principal of the mortgage that is due in the next financial year should be treated as a current liability (Scott & O'Brien, 2003) . Once this is done, the remaining principal balance is to be treated as a long term liability. The interest in the loan will not be in the balance sheet but rather in the income statement as an expense. In the case of Raffie`s the ethical issue is for the bookkeeper to enlist the asset as a long term asset and the interest payments as an expense in the income statement. The principal amount to be paid in the next financial year should be classified as a short term liability.
The asset is to be classified as a long term fixed asset in this section of the balance sheet. By listing it as a liability it means that the company cannot depreciate it thereby leading to payment of more taxes. This will not be in the best interest of the shareholders who will have to forfeit the tax exemption due to depreciation expense. It is also important to note that doing so will also improperly reflect the amount that the company owes in the long term as this will be reflected in the short term. This means that accounting ratios for the company will be affected as well and stakeholders who rely on these ratios could make bad decisions ( Bushman & Smith, 2001) . By enlisting it as a current liability presents a false view of what the company owes in the coming financial year thereby affecting the operational outlook of the company. This will affect how the board of directors and other stakeholders view the operations of the company. With all this into consideration the ethical issue to do is to enlist the asset and expense in the section that it is supposed to be enlisted.
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References
Bushman, R. M., & Smith, A. J. (2001). Financial accounting information and corporate governance. Journal of accounting and Economics , 32 (1-3), 237-333.
Scott, W. R., & O'Brien, P. C. (2003). Financial accounting theory (Vol. 3). Toronto: Prentice Hall.
