Accounting Analysis - Caterpillar
Autor: dmorales1109 • August 25, 2015 • Research Paper • 558 Words (3 Pages) • 710 Views
Accounting Analysis
Policies - CAT’s preparation of financial statements in conformity with GAAP include all the critical accounting policies and the more significant estimates including: residual values for leased assets, fair values for goodwill impairment tests, impairment of available-for-sale securities, warranty liability, stock-based compensation, reserves for product liability and insurance losses, postretirement benefits, post-sale discounts, credit losses, and income taxes.
Residual values for leased assets are an estimate of the market value of leased equipment at the end of the lease term based on historical wholesale market sales prices projected without inflation. At the end of 2014, the aggregate residual value of equipment on operating leases was $1.98 billion.
Fair values for goodwill impairment tests was performed as of October 1st 2014 and monitored on an ongoing basis for triggering events. Impairment of available-for-sale securities are reviewed quarterly to identify fair values below cost. If found, indication determines that a security is impaired and should be written down to a fair value.
Warranty liability is recorded as estimated future warranty cost at the time a sale is recognized. Post-sale discount reserve are discounted to dealers through merchandising programs. $1.27 billion was accrued as of December 31, 2014 and $1.13 billion as of December 31, 2013.
Income taxes are complex for CAT and they mention that they may be open to interpretation. However, their belief is that their tax return positions are consistent with applicable tax laws.
Flexibility - In the management’s discussion and analysis of financial condition and results of operations section of the annual report, CAT is very forthcoming mentioning a loss in sales and revenues of one percent and decrease in profits of two percent in 2014. Identifying these losses, CAT has implemented plans on focusing to structural cost reduction. More on this will be mention in the following paragraph.
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