Problem 3 Depreciation

The following information was taken from Fords 2012 financial statements.

2012 2011

Net Property (from balance sheet) 24,942 22,371

Depreciation Expense (Automotive and Financial Services)6,179 5,376

Effective Tax Rate 28.8%

Property and equipment are depreciated primarily using the straight-line method over the estimated useful life of the asset. Useful lives range from 3 years to 36 years. The estimated useful lives generally are 14.5 years for machinery and equipment, 3 years for software (8 years for mainframe and client based software), 30 years for land improvements, and 36 years for buildings. Special tools generally are amortized over the expected life of a product program using a straight-line method. If the expected production volumes for major product programs associated with the tools decline significantly, we accelerate the amortization reflecting the rate of decline.

The components of deferred tax assets and liabilities are (Note 24):

Assuming the tax rate is 28.8%, Compute the adjustments you would make to the balance sheet and income statement assuming accelerated depreciation is economically correct?

December 31, 2012 December 31, 2011 $ 8,079 2,417 4,973 2,321 1,820 1,790 146 1,176 22,722 (1,923) 20,799 8,189 3,163 4,534 2,297 1,731 694 194 Deferred tax assets Employee benefit plans Net operating loss carryforwards Tax credit carryforwards Research expenditures Dealer and customer allowances and claims Other foreign deferred tax assets Allowance for credit losses All other Total gross deferred tax assets Less: valuation allowances Total net deferred tax assets Deferred tax liabilities Leasing transactions Deferred income Depreciation and amortization (excluding leasing transactions) Finance receivables Other foreign deferred tax liabilities All other Total deferred tax liabilities Net deferred tax assets/(liabilities) 1,483 22,285 (1,545) 20,740 1,145 2,094 1,561 616 932 2,098 1,659 551 379 360 289 6,084 711 6,311 14,429 $ 14,715 $ December 31, 2012 December 31, 2011 $ 8,079 2,417 4,973 2,321 1,820 1,790 146 1,176 22,722 (1,923) 20,799 8,189 3,163 4,534 2,297 1,731 694 194 Deferred tax assets Employee benefit plans Net operating loss carryforwards Tax credit carryforwards Research expenditures Dealer and customer allowances and claims Other foreign deferred tax assets Allowance for credit losses All other Total gross deferred tax assets Less: valuation allowances Total net deferred tax assets Deferred tax liabilities Leasing transactions Deferred income Depreciation and amortization (excluding leasing transactions) Finance receivables Other foreign deferred tax liabilities All other Total deferred tax liabilities Net deferred tax assets/(liabilities) 1,483 22,285 (1,545) 20,740 1,145 2,094 1,561 616 932 2,098 1,659 551 379 360 289 6,084 711 6,311 14,429 $ 14,715 $