Question

The following information is from KO Corporation’s notes to financial statements:

PROPERTY, PLANT AND EQUIPMENT
December 31,	2017	2016	2015
Land	334	589	717
Buildings and improvements	3,917	4,574	4,914
Machinery, equipment and vehicle fleet	12,198	16,093	16,723
	16,449	21,256	22,354
Less accumulated depreciation	8,246	10,621	9,783
Property, plant and equipment--net	8,203	10,635	12,571
	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Depreciation	1,260	1,787	1,970

Compute the following analytical measures applied to KO Corporation. (9 points)

		2017	2016	2015
Average total life span of plant and equipment
Average age of plant and equipment
Average remaining life of plant and equipment

Discuss these ratios and their importance for analysis of KO Corporation. (3 points)

Answer 1

We assume that Same rate of depreciation is used every year. The change value is because of purchase/sale/disposal of Fixed Assets

Total Life of P&E = Gross Value of FA/ Depreciation for the year

Age of P&E = Accumulated Depreciation on FA/ Depreciation for the year

Remaining Life of P&E = Net Value of FA/ Depreciation for the year

	2017	2016	2015
Total Life Span of P&E	=16449/1260 = 13.05 years	=21256/1787 = 11.89 years	=22354/1970 =11.34 years
Avg Age of of P&E	=8246/1260 = 6.47 years	=10621/1787 =5.94 years	=9783/1970 =4.97 years
Avg Remaining life of P&E	=8203/1260 = 6.58 years	=10635/1787 =5.95 years	=12571/1970 = 6.38 years

The ratio help in identifying how efficiently KO Corporation is utilising its Fixed Assets.

Average Age of Plant & Equipment shows how long the P&E have been into use. It helps the company to estimate how much cost the company may need to bear in near future for maintenance and service of Plant and Equipment.

Average Remaining life of Plant&Equipment shows years after which the company need to incur Capital Expenditure to replace the Plant and Equipment after their useful life to keep the business open.