Financial statement effects of depreciation methods Answer the following questions using data from the Campbell Soup Company annual report in the appendix:
Required:
a. Find the discussion of Property, Plant, and Equipment and depreciation methods used by Campbell’s on page 715. Explain why the particular method is used for the purpose described. What method do you think the company uses for income tax purposes?
b. Calculate the ratio of the depreciation and amortization expense for 2011 reported on page 713 in the Consolidated Statements of Cash Flows to the total cost ( not net book value) of plant assets reported in the schedule shown on page 747.
c. Based on the ratio calculated in part b and the depreciation method being used by Campbell’s, what is the average useful life being used for its depreciation calculation?
d. Assume that the use of an accelerated depreciation method would have resulted in 25% more accumulated depreciation than reported at July 31, 2011, and that Campbell’s Retained Earnings account would have been affected by the entire difference. By what percentage would this have reduced the retained earnings amount reported at July 31, 2011?
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