The Ford Motor Company’s footnotes included the following ($ in millions): Food

Question

The Ford Motor Company’s footnotes included the following ($ in millions): Food Motor Company December 31 2011 2010 Property Land, Plant, equipment, and other $48,104 $49,454 Less: Accumulated Depreciation 32,874 33,900 Net Land, Plant, Equipment and Other 15,230 15,554 Special tools, Net 6,999 7,473 Net automotive sector property $22,229 $23,027 The notes to the income statement for 2011 revealed depreciation and amortization expense of $3,533 million. The account Special Tools, net is increased by new investments in tools, dies, jigs, and fixtures necessary for new models and production processes. Ford then amor-tizes these investments over various periods and reduces the account directly. When special tools are disposed of, the account is reduced by the book value. (Note that Ford uses the term amortization rather than depreciation for the decline in the carrying amount of these special tools.) Hint: Analyze with the help of T-accounts. 1. Assume that Ford spent $2,000 million on special tools in 2011. The company disposed of special tools with a net book value of $700 million. How much amortization did Ford record on special tools in 2011?

Explanation / Answer

Solution 1:

Ending net book value of special tools = Beginning book value + Addition to special tools - Special tools disposed off - Amortization

$6,999 = $7,473 + $2,000 - $700 - Amortization

Amortization on special tools in 2011 = $1,774 million

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