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J&J Memo

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MEMORANDUM
Johnson & Johnson
TO: DR. GREIN’S TEAM
FROM: ASHNA PATEL, SHAN WANG
DATE: JANUARY 27, 2015
SUBJECT: JOHNSON & JOHNSON CASE ASSIGNMENT

This memorandum has been created to investigate the long-lived assets and implications associated with Johnson and Johnson’s accounting methods. In this memo we would like to cover five main topics: long-lived assets, depreciation and amortization, J&J policies regarding intangible assets, cash flow statements, and asset turnover/ return on assets.

In 2013, J&J reported three different types of long-lived assets on their Consolidated Balance Sheet. The first kind reported was Plant, Property, and Equipment. The second one was Intangible Assets and third was Goodwill. We will be investigating these three assets in further detail. J&J reported $16,710 million net worth of PP&E. Within this major asset category are many sub accounts: Land & Improvements, Building & Building Equipment, and Construction in Progress, Machine & Equipment, and Depreciation. Johnson & Johnson uses the straight-line depreciation method for its assets. In 2013, there was $2.7 billion of accumulated depreciation and amortization of capitalized interested; it increased about $.2 billion since 2012. Table 1 lays out the estimated useful lives of the assets. The company capitalizes certain computer software and development cost which are amortized over the span of 3-8 years. Next, we will be discussing Intangible Assets of the company. J&J reports $1,363 million worth of amortization expense. In 2012, they reported about $1,146 million. The average amortization periods for patents and trademarks and customer relations are 17 years and 24 years. Now the question is that do these significant increases in expense make sense? It makes sense that the

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