EX 10-21 Book value of fixed assets
Apple Computer, Inc., designs, manufactures, and markets personal computers and related software. Apple also manufactures and distributes music players (iPod) and mobile phones (iPhone) along with related accessories and services including online distribution of thirdparty music, videos, and applications. The following information was taken from a recent annual report of Apple:
Property, Plant, and Equipment (in millions):
Current Year
Preceding Year Land and buildings $ 955 $ 810 Machinery, equipment, and internal-use software 1,932 1,491 Offi ce furniture and equipment 115 122 Other fi xed assets related to leases 1,665 1,324 Accumulated depreciation and amortization 1,713 1,292
a. Compute the book value of the fixed assets for the current year and the preceding year and explain the differences, if any.
b. Would you normally expect the book value of fixed assets to increase or decrease during the year?
Answer:
a. Property, Plant, and Equipment (in millions):
Current Preceding Year Year
Land and buildings.................................................... $ 955 $ 810 Machinery, equipment, and internal-use software . 1,932 1,491 Office furniture and equipment................................ 115 122 Other fixed assets related to leases ........................ 1,665 1,324 $4,667 $3,747 Less accumulated depreciation............................... 1,713 1,292 Book value ................................................................. $2,954 $2,455
A comparison of the book values of the current and preceding years indicates that they increased. A comparison of the total cost and accumulated depreciation reveals that Apple purchased $920 million ($4,667 – $3,747) of additional fixed assets, which was offset by the additional depreciation expense of $421 million ($1,713 – $1,292) taken during the current year.
b. The book value of fixed assets should normally increase during the year. Although additional depreciation expense will reduce the book value, most companies invest in new assets in an amount that is at least equal to the depreciation expense. However, during periods of economic downturn, companies purchase fewer fixed assets, and the book value of their fixed assets may decline.
Property, Plant, and Equipment (in millions):
Current Year
Preceding Year Land and buildings $ 955 $ 810 Machinery, equipment, and internal-use software 1,932 1,491 Offi ce furniture and equipment 115 122 Other fi xed assets related to leases 1,665 1,324 Accumulated depreciation and amortization 1,713 1,292
a. Compute the book value of the fixed assets for the current year and the preceding year and explain the differences, if any.
b. Would you normally expect the book value of fixed assets to increase or decrease during the year?
Answer:
a. Property, Plant, and Equipment (in millions):
Current Preceding Year Year
Land and buildings.................................................... $ 955 $ 810 Machinery, equipment, and internal-use software . 1,932 1,491 Office furniture and equipment................................ 115 122 Other fixed assets related to leases ........................ 1,665 1,324 $4,667 $3,747 Less accumulated depreciation............................... 1,713 1,292 Book value ................................................................. $2,954 $2,455
A comparison of the book values of the current and preceding years indicates that they increased. A comparison of the total cost and accumulated depreciation reveals that Apple purchased $920 million ($4,667 – $3,747) of additional fixed assets, which was offset by the additional depreciation expense of $421 million ($1,713 – $1,292) taken during the current year.
b. The book value of fixed assets should normally increase during the year. Although additional depreciation expense will reduce the book value, most companies invest in new assets in an amount that is at least equal to the depreciation expense. However, during periods of economic downturn, companies purchase fewer fixed assets, and the book value of their fixed assets may decline.
