Question

The annual report of General Mills, maker of Wheaties, Cheerios, and Betty Crocker baking

products, for the year ended May 29, 2011, contained the following($ in millions):

                                                                          May 29, 2011                   May 30, 2010

Total land, building, and equipment                    $7,492.1                              $6,949.7

Less: Accumulated depreciation                        $4,146.2                              $3,822.0

Net land. building, and equipment                  $3345.9                              $3,127.7                  

During fiscal 2011, depreciation expense was $472.6 million, and General Mills acquired land,

buildings, and equipment worth $848.8 million. Assume that no gain or loss arose from the

disposition of land, buildings, and equipment and that General Mills received cash of $158.0

million from such disposals.

Compute (1) the original historical cost of assets sold or retired during fiscal 2011, (2) the amount

of accumulated depreciation associated with the assets sold or retired, and (3) the book value of

the assets sold or retired. Hint: The use of T-accounts may help your analysis.

Answer 1

Answer 1:

T Account of Land, building, and equipment is prepared as below:

Beginning balance, Purchase and Ending balances are as given.

Original historical cost of assets sold or retired = Beginning balance + Purchase - Ending balance

= 6949.70 + 848.80 - 7492.10

= $306.40 million

Original historical cost of assets sold or retired during fiscal 2011 = $306.40 million

Answer 2:

T account of 'Accumulated Depreciation' is prepared as below:

Beginning balance, Depreciation expense and Ending balances are as given.

Accumulated depreciation associated with the assets sold or retired = Beginning balance + Depreciation expense - Ending balance

= 3822.00 + 472.60 - 4146.20

= $148.40 million

Accumulated depreciation associated with the assets sold or retired = $148.40 million

Answer 3:

Book value of the assets sold or retired = Original historical cost of assets sold or retired - Accumulated depreciation associated with the assets sold or retired

= 306.40 - 148.40

= $158 million

Book value can also be derived as:

= Cash sale value = $158 million.

Since it is given that no gain or loss arose from the disposition of land, buildings, and equipment, hence book value will be equal to cash received.

Book value of the assets sold or retired = $158 million