Depreciation Methods

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Depreciation Methods
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Depreciation Methods
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Depreciation Methods
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Depreciation Methods
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Depreciation Methods
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Depreciation Methods
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Depreciation Methods
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Depreciation Methods
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Depreciation Methods
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Depreciation Methods
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Depreciation Methods
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Depreciation Methods
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Questions on Depreciation Methods

• Does book value reflect market value?
• Is there any cash outflow associated with
  depreciation expense?
• Which method is more conservative in the early
  years of an assets life? Why?
• Why do companies use straight line depreciation?
• Over the life of the asset, is there a difference
  in total depreciation expense?
• The asset is sold for 15,000 at the end of the
  third year. Compute the gain or loss.

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Amounts needed for ratio analysis
Not used this semester
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Amounts needed for ratio analysis
Not used this semester
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Utilization Fixed Asset Turnover
Not used this semester
The higher the ratio the better. PPA are
efficiently utilized.
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Factors affecting Fixed Asset Turnover

• Compare to industry averages
• 7.0 Vs. 34.2, 13.1, 6.2
• Newer, more expensive equipment would cause
  average PPE-net to be higher.
• Competitors may lease equipment (it may not show
  up as PPE).
• Accelerated depreciation would cause average
  PPE-net to be lower.

Not used this semester
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Percentage of PPE Depreciated (AGE)
Not used this semester
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Factors affecting AGE

• No industry average to compare to
• Numerator- Accumulated Depreciation is affected
  by depreciation method selected.
• What would you expect this ratio to be for a
  company like Cannondale?

Not used this semester