Question

Karl Company operates in both the beverage and entertainment industries. In June 2013, Karl purchased Good Time, Inc., which produces and distributes motion picture, television, and home video products and recorded music; publishes books, and operates theme parks and retail stores. The purchase resulted in $2.7 billion in goodwill. Since then, Karl has undertaken a number of business acquisitions and divestitures (sales of businesses) as the company expands into the entertainment industry. Selected data from a recent annual report are as follows (amounts are in U.S. dollars in millions): $ Current Year $ 1,272 761 2,733 3,076 Prior Year 991 645 2,559 3,355 Property, Plant, Equipment, and Intangibles from the Consolidated Balance Sheet Film costs, net of amortization Artists' contracts, advances, and other entertainment assets Property, plant, and equipment, net Excess of cost over fair value of assets acquired From the consolidated Statement of Income Total revenues From the consolidated Statement of Cash Flows Income from continuing operations Adjustments: Depreciation Amortization Other adjustments (summarized) Net cash (used in) provided by continuing operations From the Notes to the Financial Statements Accumulated depreciation on property, plant, and equipment 9,714 880 10,644 $ 445 $ 289 208 (1,618) (241) 265 190 (256) 644 $ 1,178 $ 1,023

Answer 1

1 Cost of the Property, Plant and Equipment at the end of the current year Current Year Prior year Amount (in $) Property, Plant and Equipment from consolidated Balance Sheet 2733 2559 Property, Plant and Equipment (Net) (Assumed that the given value is after deducting depreciation because by cross checking the same with prior year data we are not getting the current year value of the assets) Accumulated depreciation on Property, Plant and Equipment 1178 1023 3582 3911 Property, Plant and Equipment (Gross) 2 Approximate age of the property, plant and equipment at the end of the current year Increase in the value of the Property, Plant and Equipment (Compared 329 to the prior year and current year) So the depreciation calculated below will include the depreciation on the new/additions of the Property, Plant and Eqquipment. But without proper information we can not calculate the exact age of the asset Accumulated Depreciation for the Current year 1178 Accumulated Depreciation for the Last year Depreciation expense for the year 1023 155 Approx Age of the Property Plant and Equipment Accumulated Depreciation Current year/ Depreciation for the current year 1178 155 7.6 years 3 Fixed asset turnover ratio 9714 2733 Fixed Asset Turnover Ratio (Net Sales Average Fixed assets) 3.55 times 4 Excess of cost over fair value of assets acquired Excess amount paid at the time of acquisition of a company over and above the fair value of assets acquired is considered as Goodwill. 5 Why Depreciation and Amortization amounts are added to income from continuing operations? Since these are non cash expenses they are added back to the income