Hernischfeger Corporation Case
After reading the article and the financial statements associated with it, I have noticed one thing to consider. With every decision made by the owners of the baseball club, was it done to satisfy the IRS tax code or was it done according to Generally accepted accounting principles (GAAP).?
The articles pin point’s three major issues in which the accounting is being disputed according to the player’s point of view and the owner’s point of view.
Roster Depreciation
The way the players were being compensated
Stadium costs
Roster Depreciation
In exhibit 1 of the income statement, there is a cost amount of $2,000.00 which is recorded as roster depreciation. This is a depreciation which the owners claim they had recognized as the value of the players when the team was purchased. I think the reason why they did that was because of tax purposed because IRS allowed them to so. The depreciation is spread over six years. The players feel the depreciation is not economically sound because as the time progresses, the players in most cases get better and better not unless they are incurred with injuries and trade deals. The players urgued that instead of depreciation, it should be appreciation.
Players Compensation
After signing contracts, some player’s bonuses are not paid in cash. They suggest that the differed payments should be expensed out at the time they are paid out. The owners had paid all the bonuses in cash and claim that there is no guarantee that the players will finish their contracts. According to player’s perspective, I think they have a case because their case is according to GAAP that payments should be recorded as expenses at the time they are paid out.
There is also a concern that some players bonuses come in the form of signing