Question

Refer to the financial statements of Apple in Appendix A to answer the following.

1. What percent of the original cost of Apple’s property and equipment remains to be depreciated as of September 26, 2015, and September 27, 2014? Assume these assets have no salvage value. (Note: Accumulated Depreciation is listed under “Property, Plant and Equipment” in the notes to Apple’s financial statements in Appendix A.)

2. Over what length(s) of time is Apple depreciating its major categories of buildings and equipment?

3. What is the change in total property, plant, and equipment (before accumulated depreciation) for the year ended September 26, 2015? What is the amount of cash provided (used) by investing activities for property and equipment for the year ended September 26, 2015? What is one possible explanation for the difference between these two amounts?

4. Compute Apple’s total asset turnover for the year ended September 26, 2015, and the year ended September 27, 2014. Assume total assets at September 28, 2013, are \(207,000 (\) millions).

Fast Forward

5. Access Apple’s financial statements for fiscal years ending after September 26, 2015, at its website (Apple.com) or the SEC’s EDGAR database (SEC.gov). Recompute Apple’s total asset turnover for the additional years’ data you collect. Comment on any differences relative to the turnover computed in part 4.

Short answer

1. Thus, the value as of September 26, 2015, is 45.6%.
2. Life is 1 to 5 years
3. Property and equipment show an increment of $10,242 million
4. Thus, the asset turnover ratio in 2015 is 0.895
5. Thus, the asset turnover ratio for 2018 is 0.72 times

Step-by-step solution

Computation of proportion of actual cost remaining to be depreciated

Depreciation: -Depreciation is the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use.

Value as of September 27, 2014

$\mathit{a}\mathit{c}\mathit{t}\mathit{u}\mathit{a}\mathit{l}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{r}\mathit{o}\mathit{p}\mathit{o}\mathit{r}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{=}\frac{\mathbf{b}\mathbf{o}\mathbf{o}\mathbf{k}\mathbf{}\mathbf{v}\mathbf{a}\mathbf{l}\mathbf{u}\mathbf{e}\mathbf{}\mathbf{o}\mathbf{f}\mathbf{}\mathbf{p}\mathbf{r}\mathbf{o}\mathbf{p}\mathbf{e}\mathbf{r}\mathbf{t}\mathbf{y}\mathbf{}\mathbf{a}\mathbf{n}\mathbf{d}\mathbf{}\mathbf{e}\mathbf{q}\mathbf{u}\mathbf{i}\mathbf{p}\mathbf{m}\mathbf{e}\mathbf{n}\mathbf{t}}{\mathbf{a}\mathbf{c}\mathbf{t}\mathbf{u}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{c}\mathbf{o}\mathbf{s}\mathbf{t}}$

$=\frac{\$20,625}{\$39,015}=56.9\%$

Thus, the proportion of the actual cost is 52.9%.

Value as of September 26, 2015

$\mathit{a}\mathit{c}\mathit{t}\mathit{u}\mathit{a}\mathit{l}\mathbf{}\mathit{c}\mathit{o}\mathit{s}\mathit{t}\mathbf{}\mathit{p}\mathit{r}\mathit{o}\mathit{p}\mathit{o}\mathit{r}\mathit{t}\mathit{i}\mathit{o}\mathit{n}\mathbf{=}\frac{\mathbf{b}\mathbf{o}\mathbf{o}\mathbf{k}\mathbf{}\mathbf{v}\mathbf{a}\mathbf{l}\mathbf{u}\mathbf{e}\mathbf{}\mathbf{o}\mathbf{f}\mathbf{}\mathbf{p}\mathbf{r}\mathbf{o}\mathbf{p}\mathbf{e}\mathbf{r}\mathbf{t}\mathbf{y}\mathbf{}\mathbf{a}\mathbf{n}\mathbf{d}\mathbf{}\mathbf{e}\mathbf{q}\mathbf{u}\mathbf{i}\mathbf{p}\mathbf{m}\mathbf{e}\mathbf{n}\mathbf{t}}{\mathbf{a}\mathbf{c}\mathbf{t}\mathbf{u}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{c}\mathbf{o}\mathbf{s}\mathbf{t}}$

$=\frac{\$22,471}{\$49,257}=45.6\%$

Thus, the value as of September 26, 2015, is 45.6%.

Step 2:

Apple categorized its main assets into buildings and machines. The estimated life of the building is 30 years and the estimated life of the machine is 1 to 5 years.

Determining the change in property and equipment

Property and equipment: -Property and equipmentare the tangible long-lived assets used to produce or sell products and services. It is also known as plant assets or fixed assets.

$\mathit{c}\mathit{h}\mathit{a}\mathit{n}\mathit{g}\mathit{e}\mathbf{}\mathit{i}\mathit{n}\mathbf{}\mathit{t}\mathit{h}\mathit{e}\mathbf{}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathbf{}\mathit{o}\mathit{f}\mathbf{}\mathit{p}\mathit{r}\mathit{o}\mathit{p}\mathit{e}\mathit{r}\mathit{t}\mathit{y}\mathbf{}\mathit{a}\mathit{n}\mathit{d}\mathbf{}\mathit{e}\mathit{q}\mathit{u}\mathit{i}\mathit{p}\mathit{m}\mathit{e}\mathit{n}\mathit{t}\mathbf{=}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathbf{}\mathit{i}\mathit{n}\mathbf{}\mathbf{2015}\mathbf{-}\mathit{v}\mathit{a}\mathit{l}\mathit{u}\mathit{e}\mathbf{}\mathit{i}\mathit{n}\mathbf{}\mathbf{2014}$

. $=\$49,257-\$39,015$

$=\$10,242million$

Property and equipment show an increment of $10,242 million in 2015 compared to 2014.According to the cash flow statement, an amount of $11,247 million cash is also used for buying the property and equipment.

The difference in the amount of property and equipment for 2014 and 2015 is because apple probably wrote off his property and equipment that were depreciated completely.

Computation of asset turnover ratio

Asset turnover ratio: -Asset turnover ratiomeasures a company’s ability to generate sales from assets by comparing net sales with total assets.

$\mathit{a}\mathit{s}\mathit{s}\mathit{e}\mathit{t}\mathbf{}\mathit{t}\mathit{u}\mathit{r}\mathit{n}\mathit{o}\mathit{v}\mathit{e}\mathit{r}\mathbf{}\mathit{r}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathbf{=}\frac{\mathbf{n}\mathbf{e}\mathbf{t}\mathbf{}\mathbf{s}\mathbf{a}\mathbf{l}\mathbf{e}\mathbf{s}}{\mathbf{t}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{a}\mathbf{v}\mathbf{e}\mathbf{r}\mathbf{a}\mathbf{g}\mathbf{e}\mathbf{}\mathbf{a}\mathbf{s}\mathbf{s}\mathbf{e}\mathbf{t}\mathbf{s}}$

Asset turnover for 2014

$assetturnoverratio=\frac{\frac{\$182,795}{(\$231,839+\$207,000)}}{2}$

$assetturnoverratio=\frac{\$182,795}{\$219,420}=0.833$

Thus, the asset turnover ratio in 2014 is 0.833

Asset turnover for 2015

$assetturnoverratio=\frac{\frac{\$233,715}{(\$290,479+\$231,839)}}{2}$

$assetturnoverratio=\frac{\$233,715}{\$261,159}=0.895$

Thus, the asset turnover ratio in 2015 is 0.895

Determining asset turnover ratio for 2018

$\mathit{a}\mathit{s}\mathit{s}\mathit{e}\mathit{t}\mathbf{}\mathit{t}\mathit{u}\mathit{r}\mathit{n}\mathit{o}\mathit{v}\mathit{e}\mathit{r}\mathbf{}\mathit{r}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathbf{=}\frac{\mathbf{n}\mathbf{e}\mathbf{t}\mathbf{}\mathbf{s}\mathbf{a}\mathbf{l}\mathbf{e}\mathbf{s}}{\mathbf{t}\mathbf{o}\mathbf{t}\mathbf{a}\mathbf{l}\mathbf{}\mathbf{a}\mathbf{v}\mathbf{e}\mathbf{r}\mathbf{a}\mathbf{g}\mathbf{e}\mathbf{}\mathbf{a}\mathbf{s}\mathbf{s}\mathbf{e}\mathbf{t}\mathbf{s}}$

$assetturnoverratio=\frac{\$265,595}{\$370,522}=0.72$

Thus,the asset turnover ratio for 2018 is 0.72 times. It has been observed that the asset turnover ratio has declined in 2018 when compared to the 2014 and 2015 ratios which may be because there is a decrease in net sales.