Balance Sheet Item 12/31/2005 12/31/2006 Equipment 100M 105M Accumulated Depreciation - Equipment 40M 46M The company’s income statement shows depreciation expense is 8M. (M: million) What’s the accumulated depreciation on the equipment?
For the old equipment : 44m New equipment : 2m Cheers Sumo
But the depreciation expense is 8M as in the income statement whereas from the B/S it seems to be 6M…how do you calculate the depreciation on the new/old equipments?
Accumulated depreciation is the cumulative depreciation every since any piece of equipment was bought or sold in the company. Your depreciation expense for this period – is what is in the Income statement = 8 Mill. Since your Accumulated depreciation has changed by 6 Million --> it means some equipment was SOLD. Whether that piece of equipment was sold at a loss or at a gain, you would need to determine as well, provided you were given the numbers. So in the above problem – it you were told that you purchased 12 Mill worth of equipment and that gain on sale of equipment was say 2 Mill. Look at your Net PPE Begin = 100 - 40 = 60 Net PPE End = 105 - 46 = 59 Net PPE End = Net PPE Begin + Purchases - Depr in Period - Sales so 59 = 60 + 12 - 10 - Sales or Sales = 60 + 12 - 10 - 59 = 3 This would be the BV of the equipment you sold. Since Gain on Sale of equipment = 2 Sales Proceeds = BV Sales + Gain on Sale = 3 + 2 = 5 Hope this helps
Thx, cpk123. You are super clear on the explanation. Now I understand it.
nice job, that is it, some proceeds hit the SCF – recall that procced go to CFI, but the gains or losses are either netted out or add backs on the stmt of CF