Question

Select a publicly-traded company (Home Depot, Inc.) and access the company’s most recent annual report (select the “Investors” menu item). Locate the notes to the financial statements and identify the information topics disclosed in these footnotes and explain the reasons for disclosure. Please no answer that has already been listed Thanks and cite if needed, please?

Answer 1

>Notes about depreciating assets

Depreciation is spreading the cost of a long-term asset over its useful life (which may be years after the purchase). A business values its ending inventory using inventory valuation methods. The methods a company opts to use for both depreciation expense and inventory valuation can cause wild fluctuations in the amount of assets shown on the balance sheet and the amount of net income (loss) shown on the income statement.

The user needs to know which methods the company uses when comparing financial statement figures with another company’s figures. Differences in net income could merely be a function of depreciation or valuation methodology, and the user would be unaware of that fact without the footnote.

>Notes about valuing inventory

Companies have two inventory issues that must be disclosed in the notes: the basis upon which the company states inventory (lower of cost or market) and the method in use to determine cost. GAAP allows three different cost flow assumptions: specific identification; weighted average; and first in, first out (FIFO).

Accounting for depreciation and inventory is usually addressed in whichever note gives a summary of accounting policies.

>Notes that disclose subsequent events

The company also has to address any subsequent events that happen after the close of the accounting period. How the company handles this type of event hinges on whether the event is a Type I or Type II event.

Type I events affect the company’s accounting estimates booking on the financial statements. Type II events aren’t on the books at all before the balance sheet date and have no direct effect on the financial statements under audit. The purchase or sale of a division of the company is a classic example of a Type II event.