Analyzing disclosures regarding fixed assets

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Reference no: EM131110892

ANALYZING DISCLOSURES REGARDING FIXED ASSETS. Exhibit 7.29 presents selected financial statement data for three chemical companies: Monsanto Company, Olin Corporation, and NewMarket Corporation. (NewMarket was formed from a merger of Ethyl Corporation and Afton Chemical Corporation.)

Required

a. Compute the average total depreciable life of assets in use for each firm.

b. Compute the average age to date of depreciable assets in use for each firm at the end of the year.

 NewMarket Monsanto Olin Corporation Company Corporation

Depreciable Assets at Cost:

 Beginning of year \$752 \$4,611 \$1,796 End of year 777 4,604 1,826 Accumulated Depreciation: Beginning of year 584 2,331 1,301 End of year 611 2,517 1,348 Net Income 33 267 55 Depreciation expense 27 328 72 Deferred tax liability relating to depreciable assets: Beginning of year 13 267 83 End of year 9 256 96 Income tax rate 35% 35% 35% Depreciation method for financial reporting Straight-Line Straight-Line Straight-Line Depreciation method for tax reporting Accelerated Accelerated Accelerated

c. Compute the amount of depreciation expense recognized for tax purposes for each firm for the year using the amount of the deferred taxes liability related to depre- ciation timing differences.

d. Compute the amount of net income for the year for each firm assuming that depre- ciation expense for financial reporting equals the amount computed in Part c for tax reporting.

e. Compute the amount each company would report for property, plant, and equipment (net) at the end of the year if it had used accelerated (tax reporting) depreciation instead of straight-line depreciation.

f. What factors might explain the difference in average total life of the assets of NewMarket Corporation and Olin Corporation relative to the assets of Monsanto Company?

g. What factors might explain the older average age for depreciable assets of NewMarket Corporation and Olin Corporation relative to Monsanto Company?

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