WRITEDOWN OF EQUIPMENT PLUS

'As a result of what has transpired, network equipment management might consider looking beyond the car in front of them as they speed down the information superhighway.'Īs Cisco executives can now tell you, pileups on the road or in the warehouse can be extremely painful. 'The networking industry, having no experience with a downturn and never having to deal with double or triple ordering, responded to high order patterns with higher build rates and substantial inventory accumulation to facilitate the projected shipping rates,' said Needham & Co. Restructuring and reorganization costs frequently include some element of impairment.On Tuesday, the network-equipment giant provided the grisly details behind its astonishing $2.25 billion inventory write-off in the third quarter, essentially admitting that it too was caught up in the Internet hype that, at its peak, gave the company the highest market capitalization in Wall Street history. These charges or expenses can be significant, are certainly hard to forecast, and normally considered to be non-recurring when calculating normalized profits. The carrying amount of the assets is reduced and the income statement is expensed. This process is called an impairment and is fundamentally like unscheduled depreciation. Fair value is the anticipated recoverable amount. This may be due to an unexpected change in market conditions or other circumstances. When the business believes that the carrying amount of PP&E is overstated, it should impair or write down the book value of the asset to fair value. Land is the most common example of this but if the land is “wasting”, such as a quarry or mine, then it is depreciated like any PP&E asset. If an item of PP&E is not being consumed over time or if its useful life is very long, then it is not depreciated. Over the financial year, a business may want to purchase more assets or maintain current ones with the aim to increase their economic benefit (revenues).

The cash flow is the initial purchase, called capital expenditure (capex).Ĭapital expenditure or capex increases the PP&E balance and represents the investing activities of the business. In the income statement, this is not a cash flow. The expense incurred is the same for each period of the asset’s life. The formula for straight-line depreciation is the following:ĭepreciation Expense = (Cost – Salvage Value) / Useful Life of Asset Straight line is the most common method and is quick and easy to calculate. The two main systems are straight line and reducing balance. There are many methods of calculating depreciation. – Extract from notes to accounts 2018 Depreciation and Capex The footnotes break this down into the component parts. PP&E is presented in the balance sheet at the net book amount (net of accumulated depreciation). Impairments are unpredictable and never included in financial forecasts and are treated as non-recurring items.PP&E can suffer impairment expenses which represent an extraordinary loss of value and the asset must be written down to its fair value.Depreciation only represents the accounting cost of using long term assets over their useful life and does not represent a decline in market value.It is reported at the net book amount which accounts for depreciation (an accounting cost allocation method) and Capex which may vary from its market value.Property, Plant and Equipment or PP&E is represented as one line in the balance sheet but is often comprised of many non-current assets associated as part of the cost of doing business and producing economic benefits.Depreciation is a cost allocation system and does not represent a decline in the market value of assets. Depreciation represents the consumption of benefits over time and matches the revenues in any period with the PP&E cost of producing those revenues. Therefore, its cost is allocated into the income statement over time using a process called depreciation.

PP&E is part of the cost of doing business and produces economic benefits over several periods. It is presented as one line item but can be made up of the following components: If PP&E is constructed rather than purchased, all costs of construction, including interest, are added to arrive at the PP&E work in process amount. Delivery, inspection, handling and installation costs will all be included in the items initial value.

This can be summarized by all costs which bring the asset to its working condition for its intended use.

WRITEDOWN OF EQUIPMENT PLUS

They are initially included at cost, which is purchase price plus any incidentals associated with their acquisition. They are expected to be used by the business for more than one year and, consequently, categorized as non-current assets. Property, plant and equipment are tangible assets (with physical substance) often abbreviated to PP&E.

Writedown of equipment