Question

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Book Value of Fixed Assets Cannington Inc, designs, manufactures, and markets personal computers and related software. Cannington also manufactures and distributes music players (cPod), mobile phones (CPhone), and smartwatches (Cannington Watch) along with related accessories and services, including online distribution of third-party music, videos, and applications. The following information was taken from a recent annual report of Cannington: Property, Plant, and Equipment (in millions): Current Year Preceding Year Land and buildings $485,470 $281,573 Machinery, equipment, and internal-use software 461,197 364,103 Other fixed assets 587,419 441,778 Accumulated depreciation and amortization (616,547) (514,598) a. Compute the book value of the fixed assets for the current year and the preceding year. Current year book value in millions) sh Preceding year book value in millions) s A comparison of the book values of the current and preceding years indicates that they increased . A comparison of the total cost and accumulated depreciation reveals that Cannington purchased SI million of additional fixed assets, which was offset by the additional depreciation expense of $ million taken during the current year. b. Would you normally expect Cannington's book value of fixed assets to increase or decrease during the year? Increase

Answer 1

a.
Book Value of Asset = Gross Value of Asset - Accumulated Depreciation
	Current Year	Preceding Year
Land and buildings	$485,470	$281,573
Machinery,equipment & internal-use software	$461,197	$364,103
Other fixed assets	$587,419	$441,778
Gross value of fixed assets	$1,534,086	$1,087,454
Less: Accumulated depreciation and amortization	$616,547	$514,598
Book value of fixed assets	$917,539	$572,856
Answer
Current year book value(in millions)	$917,539
Preceding year book value(in millions)	$572,856
	Current Year	Preceding Year	Purchases (Current Year- Preceding Year)
Land and buildings	$485,470	$281,573	$203,897
Machinery,equipment & internal-use software	$461,197	$364,103	$97,094
Other fixed assets	$587,419	$441,778	$145,641
Gross value of fixed assets	$1,534,086	$1,087,454	$446,632
Additional Depreciation=Current Year Depreciation-Preceding Year Depreciation
= $ 616,547 - $ 514,598
= $ 101,949
Answer
A comparison of the book values of the current year and preceding years
indicates that they increased. A comparison of the of the total cost and
accumulated depreciation reveals that Cannington purchased    $			446,632
million of additional fixed assets, which were offset by the additional
depreciation expense of                   $	101,949	million taken during the
current year.
b.
A comparison of the gross value of the fixed assets of the current year and
preceding years shows that the gross value of the assets has increased
because of assets purchased by Cannington. Since, depreciation charged on
the assets is a fraction of the gross purchase price of the asset,hence it will
always be lower than the new purchases of the assets.
Hence,normally the book value of fixed assets would increase