Financial Reporting Problem

Financial Reporting Problem, Apple IncParaphrase to make 0% plagiarismWhat were the total cost and book value of property, plant, and equipment at September 27, 2014?
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Financial Reporting Problem, Apple Inc
Institutional affiliation
Date
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Financial Reporting Problem, Apple Inc
What were the total cost and book value of property, plant, and equipment at September
27, 2014?
Answer: $20,624 (million)
Book value of an asset is the value at which the asset is carried on a balance sheet and calculated
by taking the cost of an asset minus the accumulated depreciation. Book value is also the net
asset value of a company, calculated as total assets minus intangible assets (patents, goodwill)
and liabilities. For the initial outlay of an investment, book value may be net or gross of expenses
such as trading costs, sales taxes, service charges and so on. The total cost and book value of
property, plant, and equipment can be found on Apple’s 10K annual report on the Consolidated
Balance Sheet.
Using the notes to find financial statements, what method or methods of depreciation are
used by Apple for financial reporting purposes?
Straight line depreciation is likely to be the most common method of matching a plant asset’s
cost to the accounting periods in which it is in service. Under the straight-line method of
depreciation, each full accounting year will be allocated the same amount or percentage of an
asset’s cost. (The total amount of depreciation over the years of the asset’s useful life will be the
asset’s cost minus any expected or assumed salvage value.) This company capitalizes its leases to
be able to report them as expenses on the income statement. This is common practice for leased
items that will be utilized for the majority of their useful life by the same company.
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The full notes from the annual report are stated by Apple as follows:
“Property, plant and equipment are stated at cost. Depreciation is computed by use of the
straight-line method over the estimated useful lives of the assets, which for buildings is the lesser
of 30 years or the remaining life of the underlying building; between two to five years for
machinery and equipment, including product tooling and manufacturing process equipment; and
the shorter of lease terms or ten years for leasehold improvements. The Company capitalizes
eligible costs to acquire or develop internal-use software that are incurred subsequent to the
preliminary project stage. Capitalized costs related to internal-use software are amortized using
the straight-line method over the estimated useful lives of the assets, which range from three to
five years. Depreciation and amortization expense on property and equipment was $6.9 billion,
$5.8 billion and $2.6 billion during 2014, 2013 and 2012, respectively”
What was the amount of depreciation and amortization expense for each of the three years
2012-2014?
2012: $3,277
2013: $6,757
2014: $7,946
(Note: all values in millions)
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Depreciation and amortization expenses can be found on the Consolidated Statement of Cash
Flows. Both depreciation and amortization (as well as depletion) are methods that are used
to prorate the cost of a specific type of asset to the asset’s life. It is important to mention that
these methods are calculated by subtracting the asset’s salvage value from its original cost.
Amortization usually refers to spreading an intangible asset’s cost over that asset’s useful life.
Depreciation, on the other hand, refers to prorating a tangible asset’s cost over that asset’s life.
Using the statement of cash flows, what are the amounts of property, plant, and equipment
purchased in 2014 and 2013?
Property, plant, and equipment expenses can be found on the Consolidated Statement of Cash
Flows. The values in parentheses represent cash outflows for the acquisition of new property and
equipment.
2013: (8,165)
2014: (9,571)
A cash flow statement is one of the quarterly financial reports publicly traded companies are
required to disclose to the U.S. Securities and Exchange Commission (SEC) and the public. The
document provides aggregate data regarding all cash inflows a company receives from its
ongoing operations and external investment sources, as well as all cash outflows that pay
for business activities and investments during a given quarter. There are two forms of
accounting: cash and accrual. Most public companies use accrual accounting, which means
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the income statement in the annual report is not the same as the company’s cash position. Even
profitable companies can fail to adequately manage cash flow, which is why the cash
flow statement is such a critical tool for analysts and investors. The cash flow statement is split
between three different business activities: operations, investing and financing.
Using the notes to the financial statements, explain in the summary how Apple accounted
for its intangible assets in 2014
An intangible asset is an asset that is not physical in nature. Corporate intellectual property,
including items such as patents, trademarks, copyrights and business methodologies, are
intangible assets, as are goodwill and brand recognition. Intangible assets exist in opposition to
tangible assets which include land, vehicles, equipment, inventory, stocks, bonds and cash. An
intangible asset can be classified as either indefinite or definite. A company brand name is an
indefinite asset, as it stays with the company as long as the company continues operations.
However, if a company enters a legal agreement to operate under another company’s patent, with
no plans of extending the agreement, the agreement has a limited life and is classified as a
definite asset. While intangible assets don’t have the obvious physical value of a factory or
equipment, they can prove valuable for a firm and can be critical to its long-term success or
failure.
Apple amortized its intangible assets in 2014 in the amount of $1.1 billion. The vast majority of
intangible assets on Apple’s books are amortizable, meaning they have a definite useful life and
decrease in value over time.
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“Amortization expense related to acquired intangible assets was $1.1 billion, $960 million and
$605 million in 2014, 2013 and 2012, respectively. As of September 27, 2014, the remaining
weighted-average amortization period for acquired intangible assets is 3.8 years. The expected
annual amortization expense related to acquired intangible assets as of September 27, 2014, is
as follows (in millions):”
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References
Financial Accounting: Tools for Business Decision Making
What are examples of intangible assets? – Questions & Answers – AccountingTools. (n.d.).
Retrieved January 30, 2017, from http://www.accountingtools.com/questions-and-answers/whatare-examples-of-intangible-assets.html
Cash Flow Statement | Explanation | AccountingCoach. (n.d.). Retrieved January 30, 2017, from
http://www.accountingcoach.com/cash-flow-statement/explanation

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