A compute inventory for cost HUMBVer and average inventory days outstanding 2012
ID: 2492489 • Letter: A
Question
A compute inventory for cost HUMBVer and average inventory days outstanding 2012 (2012 of goods id is ,, Comme S47792 million)on the level of these two ratios, is the level what you expect Explain why a reduction of inventory quantities increased income in 2010 through 2012. timating Useful Life and Percent Used Up Loss erty and equipment section of the Abbott Laboratories 2012 balance sheet follows. given Dows industry? Explain. The December 31 Property and equipment, at cost ($ thousands) 2012 2011 2010 Land ................................... $ 604,462 $ 633,917 $ 648,988 Buildings................................... 24044,334 4,259, 467,387 ,236 Equipment ................................. 13,110,833 12,216,388 11,813,618 Construction in progress ...... ............ 954,352 698,873 577,460 18,928,887 18,016,565 17,374,302 Less: accumulated depreciation and amortization .. 10.865,840 10,142,610 9,403.346 Net property and equipment ................... $ 8,063,047 $ 7,873,955 $ 7,970,956 The company also provides the following disclosure relating to the useful lives of its depreciable assets ,Explanation / Answer
a. Depreciable assets, in this case, will include only building and equipment. Land is not a depreciable asset and construction in progress will not be depreciated till the asset is fully constructed.
Thus estimated useful life = cost of depreciable assets/depreciation expense for the year (2012 figures would be used).
cost of depreciable costs = total costs - cost of land - cost of construction in progress
= 18,928,887 - 604,462 - 954,352 = $17,370,073
Thus estimated useful life = 17,370,073/1,363,673
= 12.74 years.
The disclosure mentions a useful life of 10 to 50 years for buildings and 3 to 20 years for equipments. The value of 12.74 years falls in this range.
b. % used up = accumulated depreciation/asset cost
= 10,865,840/(18,928,887 - 604,462 - 954,352)
= 10,865,840/17,370,073
= 62.55%
This means that 62.55% of its depreciable assets have been used up. This is not a very high level to be concerned about and the company need not replace its aging assets in the near future. However, after few years the company will have to need to make capital expenditures to replace these assets.
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