What are the key long-lived asset and related expense accounts for OI?
Long-lived assets refer to non-current assets that companies use in several operating cycles and might include land, equipment, building and fixtures (Johnstone, Gramling and Rittenberg 561). Owens-Illinois has the following key long-lived assets; land, buildings and building equipment, factory machinery, transportation, office and other miscellaneous equipment. According to Johnstone, Gramling and Rittenberg, other accounts related to long-lived assets include depreciation expense, impairment expense, gains and losses from disposals, and accumulated depreciation (563). Consequently, the related expense accounts for the company …show more content…
In the cost basis, the company’s property, plant and equipment are reported in terms of cost. If the asset is individually purchased, the cost is objectively quantified but when it purchased by a number of people, then the cost is recorded on the basis of its value at the time of acquisition. In estimating the economic usefulness of assets, the company uses the straight line method to depreciate assets. This is done by subtracting the cost of an asset from its earnings during the estimated useful life. The estimated economic life considers a number of factors including wear and tear, technical standards, variations in market demand, and obsolescence of the …show more content…
These will include changes in the depreciation expense, fixed assets as a fraction of the previous year’s total assets, and depreciation expense as a fraction of assets.
a. Depreciation expense as a fraction of the former year depreciation expense
According to OI’s annual reports, the depreciation expense for 2015 was $319 million while that of 2014 was $331 million.
The percentage of 2015 depreciation as a fraction of 2014 depreciation = 319 /331
= 0.96
For Anchor Glass Container Corp, the depreciation expense for 2015 was $60 million while in 2014 it was $66 million.
The percentage of 2015 depreciation as a fraction of 2014 depreciation = 60/66
= 0.90
Compared to Anchor Glass Container, OI’s 2015 depreciation expense fraction to 2014 depreciation expense is higher and this means that OI’s long-term assets are losing value at a higher rate.
b. Fixed assets as a fraction of previous-year assets
For OI, the fixed assets for OI in 2015 was $2,931 million and $2,412 million in 2014.
The fixed asset fraction of 2014 assets = 2931/2412