Depreciation Case Studies Samples For Students

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- Both Delta Air Lines and Singapore Airlines use straight line method of depreciation. The formula for calculating annual straight line depreciation is

Asset value-Residual valueLife of asset (in years)

In our case we start with the asset value of $ 100 for all cases.
- For Delta Air Lines, we have three cases –
Prior to July 1, 1986, the residual value was 10% of asset value and asset life was 10 years. Hence, annual depreciation was 100 – 1010 = $9.
After April 1, 1993, the residual value was 5% of asset value and asset life was 20 ...

13th, November, 2013

Analysis of Electronic Arts: Ratio Analyis and Effect of Alternative Accounting Methods on Ratios
Profitability Analysis:
The ratio analysis reveals that over the years, the profitability of the company is improving. In terms of net profit margins, the company has made an applausable leap from -25.8% to 2.6% over the years.(2009-2013 ) This year the net profit margin of the company has surpassed industry benchmark of 2%.
Analyzing the ratios relating to decomposition of profit figures provides us with a better picture relating to working of the company over the years. Both Gross Profit Margins and Operating ...

Introduction

Decisions on new investments entails considering various aspects of a project. In that respect, the cost and return aspects of a project are key to an investor and there are various methods of analyzing the value expected from such projects. With that, capital appraisal is a crucial process for businesses and investors and this report presents an analysis of the Deluxe case that considers introducing a new range of clothes to address the market changes. Capital budget appraisal, referred to also capital budgeting primarily is a process facilitating firm’s investments determination concerns for both long-run and short-run. It ...

The responsibility of the external auditor is to provide reasonable assurance on the financial statements and to make sure that the material areas of the business are following the accounting standards such as IFRS, IAS or GAAP. In the current scenario of AMC Company, the amount or valuation of the plant assets is 60% of the overall assets of the organization. Therefore, the plant assets are the material area of the business and the external auditor must increase the sampling size of plant asset account’s transactions at the planning stage of the audit. (Stuart, 2012)
The treatment of ...

Introduction: For a company to carry out business profitably, the selling price and the cost price are not the only factors. Taxes, Depreciation, Un-collectibles, Inventory & Supply Chain etc. are just a few parameters which can cause a profitable company to undergo losses and vice-versa. We consider here two cases where companies are helped by financial consultancy

Let us first consider the case of Mr. Paul Raines of Atlas Construction Co

Computation of depreciation
Depreciation by the straight-line method and MACRS are shown below in separate columns.
YEAR
Depreciation by
Depreciation by

Straight line method Accelerated Recovery(MACRS) ...

Assumptions

The depreciation rate as used in the table is provided by the American house of Congress.
Tax rate incurred on a new project as per IRS rates is 50% as of 2017
If the company owns assets that could otherwise be sold in case the project is rejected, these will appear in the table as opportunity cost

No sinking fund incurred as no expenditure has taken place of yet

In case cash flow reduces in one of the departments in the company, it will reflect as cannibalization in the table

The straight line depreciation uses a steady value of 25%

Analysis of DCF
Since the net present value is greater than zero, the project should be accepted. If the value of ...

Mike Mayo takes on Citigroup (A) and (B)

Do you agree with Mike Mayo’s concerns about the extent of Citigroup’s DTA’s? Why or why not?
I agree with Mike Mayo’s concern about Citigroup’s Deferred Tax Assets (DTA’s). Citigroup’s DTA’s increased from $4.7 billion at the end of 2006 to $38 billion by the third quarter of 2009. Citigroup would use the huge DTA’s to shield future profits from taxation to a tune of $38 billion. However, the accounting rules require that a firm can only carry the DTA’s if it is reasonably probable that the firm would ...

Introduction

Capital budget analysis refers to the process through which the way a firm invests capital in projects that result in cash flows over a period of more than one year. The analysis is built on the assumption that the firm depends on the specific project or projects under analysis in order to operate and consequently, it becomes important to test whether or not the projects being considered would be viable. Notably, capital budget analysis comes with several assumptions including the estimations of cash flows from the specific project as well as the assumption on the state of the economy ...

International Finance

1
a. Discuss the corporate control of your business. Explain why your business in Mexico is exposed to agency problems.
b. How would you attempt to monitor the ongoing operations of the business?
c. Explain how you might be able to use a compensation plan that limits the potential agency problems?
d. Assume that you have been approached by a competitor in Mexico to engage in a joint venture. The competitor would offer the classroom facilities (so that you would not need to rent classroom facilities), while your employees would provide the teaching. You would split the profits with ...

Eddison electronic company is firm that engages in manufacturing and selling of electronic products. Based on the journal entries posted in 2005 financial year, it is evident that the firm has been in operation in yesteryears. The assertion is confirmed by the postings of raw materials, work in progress and finished goods inventory in the month of January. Like in most companies, Eddisson creates an allowance opportunity for customers to purchase items for cash or credit basis. In particular, the firm’s journal entry indicates that the sales department recorded $29440 and $28460 worth of electronic goods sold on ...

- Worksheet entry figures

Cash flow figures and adjustments:

The price used for sales estimation is the £50/MWh tariff that is guaranteed by the government. On the other hand, the megawatts used for the two projects over the 15years period include 60,000 MWh for the small wind-farm and 120,000 MWh for the large wind-farm project.

Cash flow items from the profit and loss account

Adjusted figures
- Government grant cash-flow is accounted for in year 1 since it is received in the first year although spread over the 15 years for purpose of profit and loss computation. In that respect the grant receipts for the two projects is calculated as ( ...

Part A: Classification of items as assets or liabilities

Under this section, we will classify each of the given accounting transactions under appropriate category. Below presented is the snapshot of the excel sheet indicating the correct answers followed by the reasons for their classification under the relevant category:

Reasons for classification of each item:

a) An amount of £40K owed in incorporation tax: Since the company owes an amount, it will be classified under the liabilities section.
b) Stock worth £15K in the stock room: Stock/ Inventories are the current assets of the company and hence will be classified under current assets only.
c) An amount of £20K paid to a supplier for a product yet ...

MEMORANDUM

Best Buy Co., Inc Analysis
Introduction
Best Buy is an accredited consumer electronics retailer. The company has a strong presence all over the world. That makes it a very interesting consideration for investment since the demand for consumer electronics will not slow down any time soon. Investors will always take a keen interest in a company’s nature of business, major costs, management style as well as financial performance before deciding on the company to invest in. This memo attempts a detailed analysis and description of the Best Buy’s activities, financial performance and future outlook, (Business, 4)

Revenue Generation

Best Buy Inc generates revenue ...

- There are a few economic problems which company can face:
- Adverse selection. It if form of market disorganization through asymmetric information between producers and consumers. As a result, more worth goods drive out goods with higher quality.
- Next possible problem is barriers to entry and exit to the market. Company can’t have enough resource to start at current market or vise versa it can’t go out from market avoiding bankruptcy.
- Unfair competition is also important problem which can negative impact on company’s results. There are some examples of unfair competition: dumping, ...

Coming Home Funeral services seems to be a company which has potential for growth and this is demonstrated in its financial figures. However this growth appears to be very conservative according to peer reviewed estimates which show that this is more likely to be 1.5 per cent than what the company’s directors are projecting. The revenue was flat for three years at 111,000 the rising moderately to 114,000 after the third year and to 117,446 after the sixth year. This shows that the sales figures are showing slow growth and this could be due to a number ...

Ch. 13: Case 13-4 Application of SFAC No. 13
a. What is the theoretical basis for the accounting standard that requires certain long-term leases to be capitalized by the lessee? Do not discuss the specific criteria for classifying a specific lease as a capital lease.
The transfer of a lease from the lesser to the lessee automatically shifts all the benefits and risks into the ownership of the lessee, it therefore should be capitalized by the lessee, and the economic effect is like that of installment purchase in many aspects. In both cases the lessee or the buyer enjoys most ...

Question 1

Sources of the problem facing Wight
Despite Wright comprehend and being clear on his mandate as the Clearwater Seafood’s Chief Financial Officer (CFO) he had faced several challenges. As CFO, he was required to determine the best way to incorporate company’s foreign exchange risk management program into the overall growth strategy of the firm. The company has been benefiting from a weak Canadian dollar. However, strengthening of the Canadian dollar has become a source of the problem that Wight is facing. According to the article, as the Canadian dollar falls, the company’s foreign exchange risk management ...

Stock Analysis: Macy’s

About the report
The report comprehensively discusses the discounted cash flow model and related assumptions used for calculating the intrinsic value of Macy’s stock. Since the objective of this report is to frame a prudent investment recommendation, we will also discuss the industry reports to forecast the future potential of the stock.

About the company

Founded in the year 1830, Macy’s is the largest department stores in the United States. The company has relied on multiple acquisitions over the years and has now united a conglomerate of regional brands under its flagship brands of Macy’s and Bloomingdale. Being one ...

Introduction

International trade, which involves an exchange of goods and services across the geographical boundaries of a country, is one of the major determinants of the economic stability of a country. The volume of trade indicates the effect of trade on the economies of the participating countries. The economy of the United Kingdom has continuously experienced expansion despite the presence of rampant unemployment and inflation until the 2008 recession. This resulted from the failure of the government to take actions to correct economic instabilities (Washington et al. n.p).
The relative value of currency between countries involved in exchange is essential ...

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a)
i) SCON 6 defines ‘assets’ as those economic resources which are acquired by an entity through events or transactions done in the past. These resources certainly have future economic benefits and are under the control of the entity which uses them.
SCON 6 defines ‘expenses’ as cash outflows which are incurred due to the operating activities of an entity. These activities are the day-to- day operations which run an enterprise. Expenses are incurred when assets are used up or when liabilities are generated.
ii) Costs should be ...

Evaluation of the appropriateness of the treatments in Carter’s 2015 financial statements

Treatment of exclusive rights
Carter capitalised the amount paid for exclusive distribution rights. Distribution rights are intangible assets. In this case, the asset is not internally generated hence it should be capitalised in the year the cost is incurred. If the asset has a definite useful life, it should be amortised over the useful life. When an intangible asset is acquired, its reasonable useful life should be estimated to determine the amortization expense. However, an intangible asset whose useful life is indefinite shall not be subjected to amortization. Instead, it shall be tested for impairment and any losses recognised ...

Being one of the most recognized luxury brands in the world requires a constant wobbly balance to be kept. The customer should be always understood and heard, while the external factors should be adapted to within the shortest time. From the day of its foundation in 1941 Coach’s product itself did not change much. It used to be all about being simple in style and resistant to wear and tear; the difference is concealed in additional value added to the customer.

Question 1

For Coach the competition in the luxury goods industry is estimated as fairly strong, due to the ...

Mark and Spencer

1. The first characteristic of revenue in the Annual Report (Marks and Spencer) is when the goods and services are delivered to the final client including all the risk and reward referred to the operation of the company and the client. The revenue occurs when the sale of good is with customers outside the group of companies of Mark and Spencer; a sale between companies of the same group is not considered in the revenues of the company.
2. The criteria to give the value to all the assets and liabilities of the financial statements of Mark and Spencer ...

Sources of currency values

These currency values have been obtained from several sources. The first source is Bloomberg. This site offered the values of these currencies for comparison purposes. There was a need for computation and conversion in order to obtain accurate values. Bloomberg offers currency values for international financial markets (Watson, 2013). The other source for these currency values is yahoo finance. This platform provides currency values on a historical trend basis. It provides charts and trends depiction for a clear and illustrative comparison. Yahoo Finance has been a key source for financial values; aiding financial analysts in their analysis (Elliott, 2012). The final source for ...

Direct versus Indirect Methods of Preparing a Statement of Cash Flow

There is a difference between the direct and indirect methods of preparing a statement of cash flow. In the direct method of preparing a statement of cash flow, the cash flows are listed in the operations part of a cash flow statement. The cash flows that result from operations is in the form of cash paid to suppliers, customer collections, and the money paid to employees among others. In this section, the cash that is paid for interest and income tax is also reported. The direct method of preparing cash flow statements is problematic for many companies. The problems that arises when the ...

Business Analysis Using Financial statement

We conducted an analysis to determine if Baidu is facing critical accounting assumptions.They represent the basic elements that should be put into consideration when preparing accounting reports.They include the recognition of the trreatment of the various items in the income statement and the cash cashflows. The treatement of various items as presented in them .inorder to prove this we carried a critical examination of Baidu financial statements and focused mainly on the income statement and the cashflows statement.both of these statements have been prepared according to the accounting standards set by the U.S GAAP which is the the accountion system ...

Part One:

a) Calculate the Weighted Average Cost of Capital
WACC: Weight of Debt* Cost of Debt(1-Tax rate) + Weight of Equity* Cost of Equity
WACC:[( 200000/400000)* 0.09(1-.22)] + [(200000/400000)* .15]
WACC: 0.0351+ .0300

WACC: 6.51%

*WACC that is also known as Cost of Capital will be used further to discount the cash flows of the company.
b)Calculation of Capital Allowance and Tax Payable on each project:

Project A:

Tax depreciation
Capital Allowance and tax liability
*Assuming that business loss for Year 1 will not be carry-forward to be offset from Year 2 profit and also there is no minimum ...

There are several explanations of financial crises in terms of adherents of various economic theories. Keynesian explanation is the lack of money. That time the money was tied to gold reserves that limited the money supply. Production grew and this eventually led to deflation and falling prices, which led to insolvency of many companies, decline the value of their shares and as a result - the collapse of the stock market. Proponents of the monetarist theory associated the stock market crash with such actions of the U.S. government like increasing the money supply, which led to depreciation of assets and ...

1. Introduction
Strong Tie Ltd. is a Canadian family-owned company that specializes in manufacturing of standardized and customized structural connectors located in Winnipeg, Manitoba. It is run by the son of the founder together with his three daughters. Unlike its competitors, the company keeps its production in China, which is possible partly due to high level of automation of the production of standardized details. The production of customized details is labour-intensive, but high costs are supposedly being offset by high premium the customers are ready to pay.
Or are they? While Universal Connector – the main competitor who currently ...

Question One

The financial statements of a company should be prepared in accordance with the accepted accounting principles and guidelines. It is the role of the auditors to make sure that the financial statements prepared reflects the true and the correct financial position of a company. There should be adequate disclosure of all the transactions in the financial statements. Disclosure is made by the use of notes provided after the financial statements have been shown. SEEK Limited is the leading provider of online employment services. It is located in Australia and New Zealand .
The disclosure of the financial statements of SEEK Limited ...

A statement of cash flows, which also referred to as the cash flow statement gives an account of how a business manages its funds. It is part of the financial statements and complements other financial statements as balance sheet and the income statement. It accounts for cash and cash equivalents that enter and leave an organization. The chief objective of a cash flow statement is to offer information as regards an organization’s cash transactions in the financial year under consideration. It also provides information about an organization’s operating activities, financing activities and investing activities. This paper seeks to distinguish ...

1. Background to the Acquisition
This proposed acquisition is between two firms, Congoleum Corporation (Abridged) and Prudential Insurance Company of America where by Congoleum is the targeted company and Prudential the acquiring one. The negotiations of the acquisition shall be handled by First Boston and Century Capital Corporation whereby the former is the lead negotiator while the latter shall one of the prospective equity participants. Congoleum is a highly diversified company with three products market segment; home furnishings, ship building and automotive and industrial distribution. The firm has an asset and revenue base of $323million and $576million respectively. In ...

Question 1

Caledonia should focus on cash flows and not accounting profits when analyzing the new project because of several reasons. First, in capital budgeting decisions, investments are usually in the form of cash outflows. Therefore, only costs that result in actual outflow of cash are relevant n such decisions. However, accounting profits includes sunk costs and non-cash expenses such as depreciation that are not relevant in capital budgeting.
Secondly, in capital budgeting decisions, the timing of cash flows is very important. This is because of time value of money. In using free cash flows, only actual cash out flows ...

Wage expenses and miscellaneous expenditure: The wage expense for the year X0 is arrived at by deducting the depreciation and miscellaneous expenses from the total operating expenditure. The Wage expenses for the 5 years, X1 through X5 are calculated by adding up a certain assumed percentage to the wage expense of the year X0. Similarly, the miscellaneous expenditures for the 5 years, X1 through X5 are calculated by adding up a certain assumed percentage to the wage expense of the year X0. This assumed percentage remains constant throughout 5 years. The percentage assumed to calculate the wage expenses and miscellaneous expenditure ...