Financial Reporting Problem – Apple, Inc.

Problem Overview

The purpose of this assignment is to help you understand the basics of financial statement analysis related to the assets section of the balance sheet, data interpretation, and how financial information is obtained to understand how a company accounts for its long-lived assets. 

What were the total cost and book value of property, plant, and equipment at September 27, 2014?

Answer: $20,624 (million)

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?

Apple uses the straight-line method of depreciation, with the useful life the asset varying between assets. The 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.

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)

Depreciation and amortization expenses can be found on the Consolidated Statement of Cash Flows. 

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)

Using the notes to the financial statements, explain in the summary how Apple accounted for its intangible assets in 2014

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.

“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):”

 
  • Student: Astrid M.
  • Textbook: ACC 291
  • Course: Accounting Week 2
 
 

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