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conduit was speculative and Qwest knew that the retained conduit
could potentially have little or no value.
Respondent’s accounting expert, Professor Charlotte Wright
(Professor Wright), testified:
the question put to me was, Would an incremental cost
accounting method * * * present a true and fair view of
the results of operations during the current period.
And then since these would be--capitalize future
economic performance, it concerned me that a method
that resulted in only minor costs--a minor amount of
costs being capitalized * * * would result in an
understatement of their assets in the current period
and then, going forward, an overstatement for financial
reporting of their profits in the future * * *.
However, Professor Wright concluded that “if there was a genuine
concern that you would never recover an allocated portion of the
total costs, then a method that allocated less to the retained
assets, such as an incremental method, would be appropriate.”
Petitioners firmly established that the value of Qwest’s
retained conduits was uncertain when the cost allocations were
made. Respondent’s expert testified that when the future
economic benefit of a retained asset is uncertain, a method that
allocates less expense to that asset may be appropriate.
Accordingly, we find that Qwest’s incremental cost allocation
method was not used to distort the organization of economic
activity and does not violate congressional intent.
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