...CheckPoint: Differentiating Depreciation Methods Page 74 Study Question 2.4: Discuss the difference between the straight-line method of depreciation and the accelerated methods. Why do companies use different depreciation methods for tax reporting and financial reporting? Straight-Line depreciation is “Method that allocates the cost of an operational asset in equal periodic amounts over its useful life.” (Libby, A., & Short, 1998) Accelerated Depreciation is “Methods that result in higher depreciation expense in the early years of an operational asset’s life and lower expense in the later years”. (Libby, A., & Short, 1998) The differences are straight forward the Straight-Line keeps the same cost until the piece of equipment is no longer useful. The Accelerated Depreciation Method starts out with a larger amount of money and dwindles down as the piece of equipment deteriorates. “Depreciation expense reduces the amount of reported net income for a company, but it does not reduce the amount of cash generated by the company because it is a noncash expense. That is why, on the statement of cash flows, depreciation expense is added back to net income (accrual basis) to compute cash flows from operations.” (Libby, A., & Short, 1998) The reasons that companies use the different depreciation methods for tax reporting and financial reporting is due to income tax is based on income, depreciation is a deductible expense. “The higher the amount of depreciation recorded...
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...The straight-line method of depreciation spreads the expense of depreciation evenly over the life of the asset. An advantage of this method is that it is a very straightforward approach and is uncomplicated and easy for users to understand and apply. However a disadvantage is because a company is paying the same depreciation amount every period it does not account for the loss of efficiency or repair expenses that an older piece of equipment may need. This method is commonly used for financial reporting because of it easy process and application. The accelerated method of depreciation has the company paying higher depreciation expenses in the early life of the asset and lower expenses in the later years. With the accelerated method the company has larger depreciation in early years and will report less profit in early years and more profit in later years. An advantage to this method is the effects on the company’s income tax return. A higher depreciation in early years will mean an immediate income tax saving which is appealing. Another advantage would be offsetting the company’s income and lowering taxes. However this can also be a disadvantage by offsetting their income they have a lower reported income which can make it difficult to gain investors or get a loan from a bank. This method could also cause a company to rush replacement of efficient equipment when the tax benefit slows down. The company would then be replacing perfectly functioning equipment and creating a large...
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...Discuss and differentiate straight line method of depreciation and accelerated method. Depreciable assets lose value as time due to aging, obsolescence, wear and tear. The loss in value of tangible assets with time is called depreciation. The most commonly method used is straight line depreciation and in this method charges are spread evenly over the life of an asset. Every year in this method depreciation charged is constant which allows more income smoothing where income has a gradual change over the life of an asset without highs and dips. The accelerated method of depreciation assumes an asset is used heavily during the early years of its useful life then loses most of its value during first few years of use. In early years there will be heavy depreciation. It then decreases with time and by the end of life of an asset, the depreciation becomes zero meaning that this method lacks constant expense over time. Since depreciation is deducted from income for tax reporting, accelerated method allows larger tax deduction in early years that improves profit. Straight line method will also provide the same amount of tax deduction in later years but because of time value of money, tax saving in early years would be better for a company. Why do companies use different depreciation methods for tax reporting and financial reporting? Straight line method is used for financial reporting only since it resembles the benefit derived from an asset and...
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...CHECKPOINT DIFFERENTIATING To Download this course, visit this link http://www.nerdypupil.com/product/acc-230-week-2-checkpoint-differentiating/ Or email us at support@nerdypupil.com ACC 230 WEEK 2 CHECKPOINT DIFFERENTIATING CheckPoint: Differentiating Depreciation Methods Resource:Ch. 2 of Understanding Financial Statements Compose a 200- to 300-word response to Question 2.4 on p. 74 (Ch. 2). In addition, include a summary of the advantages and disadvantages of using different depreciation methods, such as straightline versus accelerated. Home Work Hour aims to provide quality study notes and tutorials to the students of ACC 230 Week 2 CheckPoint Differentiating in order to ace their studies. ACC 230 WEEK 2 CHECKPOINT DIFFERENTIATING To Download this course, visit this link http://www.nerdypupil.com/product/acc-230-week-2-checkpoint-differentiating/ Or email us at support@nerdypupil.com ACC 230 WEEK 2 CHECKPOINT DIFFERENTIATING CheckPoint: Differentiating Depreciation Methods Resource:Ch. 2 of Understanding Financial Statements Compose a 200- to 300-word response to Question 2.4 on p. 74 (Ch. 2). In addition, include a summary of the advantages and disadvantages of using different depreciation methods, such as straightline versus accelerated. Home Work Hour aims to provide quality study notes and tutorials to the students of ACC 230 Week 2 CheckPoint Differentiating in order to ace their studies. ACC 230 WEEK 2 CHECKPOINT DIFFERENTIATING To Download...
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...Differentiating Depreciation Methods Sederick Nelson ACC/230 June 22, 2014 Jayme Edin Straight line method of depreciation relies on the passage of time in determining how the value of an asset depreciates over a period of time. Accelerated depreciation method allows companies to write more their assets in the earlier years and less in the later years. There are different depreciation methods that require different rates to be calculated, not every asset calls for the same depreciation method because the rates of every asset is not the same and a company can gain or lose more depending on which depreciation method is used. Companies use different depreciation method for tax and financial reporting is because tax reporting has its own set of rules and regulation that are to be followed. Financial reporting rules fall under the (GAAP) General Accepted Accounting Principles and their rules are different. Advantages and disadvantages of using different depreciation methods, when using straight line depreciation an accountant knows exactly how much will be expensed on the item each year until it reaches the end of its useful life. The profits for the future...
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...The tax system for real estate in the United States is broken down into three parts including acquisition, ownership, and disposal. 1.Parts related to acquisition The basic idea regarding real estate acquisition tax in the United States does not stray far off from the taxation on general goods. The tax base uses the real transaction price as the standard and the latest transaction time as the standard and is put through relative evaluation regarding depreciation or the amount of appreciation, after which the tax is imposed based on the actual price. Various relationships of rights, for example debt and etc. if one only takes in financial factors into consideration, has a direct effect on the real estate price and ultimately also effects the taxation. Generally, such acquisition price becomes the actual payment amount during real estate acquisition but in cases in which real state is acquired through Like Kind Exchange method, the new real estate standard price is as follows; if there was additional receipt of separate cash in addition to the book value of the real estate already in possession, it is the amount with the deduction of the same, and if cash or other values were paid in addition, it is the amount with the addition of the same. Furthermore, during the purchase of real estate, if the purchase was completed on the condition of assumption of existing debt on the acquired real estate, the acquisition cost is the sum of cash price actually paid and assumed debt. 2...
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...philosophy is customer based. Macy’s recognizes that the customer is the principal and all actions and strategies of the company should be directed and favor them. Macy’s creates competitive advantage through their superior implementation of customer-centric strategies. Within these customer-centric strategies, they focus on having open and honest communications with employees, shareholders, vendors, customers, analysts, and news media (Macy’s Inc, 2010). The corporate objectives of Macy’s Inc include: growing sales, continuing to increase the company’s profitability levels (earnings before interest, taxes, depreciation and amortization) as a percent of sales, improve return on invested capital, and maximize total shareholder return (Macy’s Inc, 2010). The four major strategic focuses of corporate managers of Macy’s are: differentiating merchandise assortments and tailoring them to local tastes, delivering obvious value, improving the overall shopping environment, and enhancing customer engagement, loyalty and traffic through more brand focused and effective marketing (Macy’s Inc, 2010). The 2010 Macy’s annual report shows the success the company has had and what their...
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...Corporate Finance a) WACC A company’s weighted average cost of capital (WACC) is usually regarded as the minimum required rate of return. It is defined as the weighted average rate of return a company must pay to its long-term creditors and shareholders for the use of their funds. When WACC is used as the discount rate, it serves as a screening device in net present value analysis. To calculate WACC we must first find the expected return on share i E(Ri), using the securities market line equation, as follows: E(Ri) = RF + βi (E(RM) - RF) = 3% + 1.2 (13% - 3%) = 15% E(Ri) = expected return on share i E(RM) = expected return on the market = (Market risk premium + the risk free rate of return) = 13% RF = risk-free rate of return = 3% βi = beta of share i =1.2 As such, WACC can be calculated using the following equation: WACC = [D/(D+E)*RD](1-T) + [E/(D+E)*RE] = [40%*6%(1-28%)] + [60%*15%] = 10.728% D = value of total debt E = value of shareholders’ equity RD = cost of debt RE = cost of equity T = corporate tax rate b) NPV, IRR, & Payback Period Assumptions: - Generally speaking, because of difficulties related to identifying costs with particular activities and determining the future benefits, all R&D costs are expensed when incurred. They do not become part of the capitalised investment asset. As such, the €20m OMG has spent on R&D will be excluded from the NPV calculations...
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...Contents 1- Current Scenario at Apple, Inc 2- Introduction to Capital Budgeting 3- Key Techniques of capital Budgeting 4- Payback Period 5- Accounting Rate of Return 6- Cash go for the company 7- Corporate overview 8- Financial trends 9- Market Cap Outlook 10- Fields of Competition 11- Differentiating factor 12- Financial Outlook 13- Financial statement 14- References Current Scenario at Apple, Inc: As of the end of financial year 2011, Apple incorporation has no long term debt in their balance sheet. Company is funded by its own cash and the equity capital that company has strengthened over the years. The market portfolio of the company has seen huge success and this has been the reason for company utilizing its cash for both shareholders wealth and also for keeping the increased investment and innovation going. It is very interesting to have a look at the patterns in which the company has managed its capital budgeting. Capital budgeting is an important decision for any corporation and same is the case with Apple Inc. Organization now needs to evaluate its future strategy on the basis of capital budgeting decision that it makes. Introduction to Capital Budgeting: The exercise conducted by business enterprises to determine whether projects like construction of a new plant or investment in a long-term venture would result in profitable gains is called capital budgeting. Projects which have long gestation periods...
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...the Jorgenson’s Neo-classical Investment Model the cost of capital is computed after considering the taxation policy and the treatment of invested capital. The paper elaborated fiscal provisions and their implications on the investment environment specifically available to foreign investors in Pakistan. The computed results show consistent and influencing impact of the cost of capital on FDI inflows. The objective of the study is to explore the a realistic and in depth investigation of the tax concessions and the response of investors. The paper argues that fiscal incentives are more appropriate in attracting FDI as these have no direct drain over public resources and are increase the after tax return by availing the tax holidays and depreciation allowances. 1. Introduction Capital can move inside and outside the boundaries of a country and the worldwide competition for it provides numerous special inducements by the capital importing countries. This movement of capital around the world gets significant attention of the policy makers and researchers in both developing and developed countries. Cross-boarder capital flows are mainly concentrated in Foreign...
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... |School of Business | | |ACC/230 (11/05/2012 – 01/20/2013) | | |Financial Reporting: Peeking Under the Financial Hood | Copyright © 2009, 2007 by University of Phoenix. All rights reserved. Course Description In this course, students will learn to analyze financial statements and methods used to value companies. Financial reports help managers choose between business paths. They also help investors and analysts evaluate the financial health of companies. This course is a practical means of discovering how financial data are generated and their limitations; techniques for analyzing the flow of business funds; and methods for selecting and interpreting financial ratios. It also presents analytical tools for predicting and testing assumptions about a firm’s performance. Policies Faculty and students/learners will be held responsible for understanding and adhering to all policies contained within the following two documents: • University policies: You must be logged into the student website to view this document. • Instructor policies: This document is posted in the Course Materials forum. University policies are subject to change. Be sure to read the policies at the beginning...
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...Reporting accounting changes and error corrections is a process governed by the Financial Accounting Standards Board (FASB). The first thing to keep in mind is that an error is not the same thing as a correction. An accounting error is "Quantitative error caused by negligence or misapplication of accounting policies and/or the provisions of GAAP; any accounting mistake except fraud.” ("Businessdictionary.com", 2014). An accounting change is “Alterations or modifications that affect (1) accounting methods (such as a new depreciation schedule, or changeover from cash basis accounting to accrual basis accounting, or vice versa), (2) accounting estimates (such as earnings shortfall or amount of bad debts), or (3) accounting entity (such as after a merger or takeover). Accounting changes must be disclosed in the notes (footnotes) accompanying financial statements.” ("Businessdictionary.com", 2014). The FASB has guidelines in which to help an organization report accounting changes a method that may be used to report accounting changes within the organization, with the help of a CPA, is retrospective perspective. Retrospective...
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...Accounting for Decision Making BAAM5013 (2014/1) INDIVIDUAL ASSIGNMENT GROUP MEMBERS THURGA CHANARAN MC1309MC0003 MOGANALETCHUMY CHELLIAH MC1401MC0003 MOHAMED FATHI A ABOULHOUL MC1401MC0013 Assigned By: Prof. Mohd Khir Ashari QUESTION 1 (a) Accounting Theory is variously described as setting out ‘postulates’, “principles” and concepts’. Is there difference between these terms, or is this just a matter of semantics? Accounting is generally termed as the language of business throughout the world. The language is the means of communication of ideas or feelings by the use of conventionalised signs, gestures, marks and articulated vocal sound. In the same way, the accounting language saves as a means to communicate matters relating to various aspects of business operations. As the individual business enterprises keep their accounting records separately, the offer to communicate is essentially from a business enterprise to various individuals, groups and institutions that are having interest in the operations and results of that enterprise. Now, although accounting is generally recognised with the business, trade and profession, the business enterprise is not the only kind of organisation that makes use of accounting. Legal entities ranging from individual to governments use and prepare accounting to obtain information on the financial condition and performance of the entity in question. Just as the business enterprises (like firms, companies, societies and institutions...
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...5/23/2013 | By Peou Prak, Rina Nugraha, Alice Yang | Flight Centre Limited | Flight Centre Limited Fundamental analysis | Flight Centre Limited | Flight Centre Limited Fundamental analysis | Contents Objective 3 Introduction 3 Business and Strategy Analysis 4 Accounting Analysis 12 Financial Analysis 16 Prospective Analysis 18 Conclusion and Recommendation Appendices………………………………………………………………………………………………………………………………………26-31 No table of contents entries found. 1.0 Objectives The purpose of this report is to provide a fundamental analysis of Flight Centre Limited (Ltd) and provide recommendation for investors wishing to invest in this company. The recommendation was made based on a number of critical assumptions hence it should be evaluated very carefully as results can significantly differ depending on the assumptions provided. The four main sections discussed in this report include: * Business Strategic Analysis - this opening section provides a brief overview of Flight Centre’s business activity and analyses the travel and leisure industry. It also provides an insight into FLT’s corporate strategy and more importantly it discusses the impact of these external and internal factors on FLT’s profitability in the future. * Accounting Analysis - Includes an analysis of the key accounting policies of FLT and explains these policies are critical to FLT’s success. It also compares the policies applied by Flight Centre with its main competitor...
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...perseverance and determination has seen Samsung grown to a $25.1 billion of semiconductor exports as of 2004 commanding a 10.4% of the country’s export volume. In this report, we will analyze in depth Samsung’s production cost advantages that brought this chaebol to where it is today, and how Samsung’s competitive advantage has translated to Samsung commanding a price premium in DRAMs in 2003 before providing recommendations to Samsung’s senior management to respond to the threat of large-scale Chinese entry into the industry in order to continue differentiating itself as a market leader over its competitors. QUESTION 1: WHAT ARE THE SOURCES OF SAMSUNG’S COST ADVANTAGES IN DRAMS IN 2003? Exhibit 7a shows a comparison of overall DRAM operating profit between Samsung and its main rivals in 2003 where Samsung had gained remarkable advantages over its competitors in almost every cost items, e.g. raw materials, labor costs, depreciation, and selling, general and administration (SG&A) except in R&D expense where Samsung spent at an industry...
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