Forecasting Fixed Assets and Depreciation

# Forecasting Fixed - 1 t t t 1 t sales sales assets fixed net assets fixed net = We then proceed by assuming that the ratio of depreciation expense

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FIN 340 Forecasting Fixed Assets and Depreciation Prof. David Allen There are two general approaches for forecasting fixed assets and depreciation when using the percent-of-sales method. Method 1 We start by assuming that the ratio of gross fixed assets to sales is constant over time. 1 t 1 t t t sales assets fixed gross sales assets fixed gross + + = Our forecast is then: 1 t t t 1 t sales sales assets fixed gross assets fixed gross + + = We then proceed by assuming that the ratio of depreciation expense to gross fixed assets is constant over time. 1 t 1 t t t assets fixed gross expense on depreciati assets fixed gross expense on depreciait + + = Our forecast is then: 1 t 1 t t 1 t assets fixed gross assets fixed gross expense on depreciati expense on depreciati + + + = And: 1 t 1 t 1 t expense on depreciati assets fixed gross assets fixed net + + + - = Method 2 We start by assuming that the ratio of net fixed assets to sales is constant over time. 1 t 1 t t t sales assets fixed net sales assets fixed net + + = Our forecast is then:

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Unformatted text preview: 1 t t t 1 t sales sales assets fixed net assets fixed net + + = We then proceed by assuming that the ratio of depreciation expense to net fixed assets is constant over time. 1 t 1 t t t assets fixed net expense on depreciati assets fixed net expense on depreciait + + = Our forecast is then: FIN 340 Forecasting Fixed Assets and Depreciation Prof. David Allen 1 t 1 t t 1 t assets fixed net assets fixed net expense on depreciati expense on depreciati + + + = Since we have net fixed assets and depreciation for year t+1, we work “up” the balance sheet and solve for gross fixed assets: 1 t 1 t 1 t expense on depreciati assets fixed net assets fixed gross + + + + = Note that in the last equation, we are adding depreciation expense....
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## This note was uploaded on 10/22/2010 for the course FIN 340 taught by Professor Davidallen during the Spring '10 term at N. Arizona.

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Forecasting Fixed - 1 t t t 1 t sales sales assets fixed net assets fixed net = We then proceed by assuming that the ratio of depreciation expense

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