Peer Responses

Responding to Person 1

Hello,

Thank you for sharing your post. Your analysis is informative and well-articulated. It gives significant insight into Nike’s depreciation and amortization reporting. It is interesting to learn from your post that Nike does not list the cost of sales and selling and administrative expenses separately but rather incorporates them into broader categories: Peer Responses.

I am persuaded that there must be a strategic reason why the company adopts this approach. Notably, this is so because it is important to avoid unnecessary details such as depreciation and amortization as part of major expenses because the two are non-cash in nature. The straight-line approach is a practical method that ensures consistency is attained in expense reporting (Huang, 2023).

However, the method can suffer the disadvantage of failing to accurately capture wear and tear that may occur at a faster speed in the initial years of the assets. I wonder how the reporting would have looked like if a different approach had been selected. Hope you get time to review my post.

Reference

Huang, H. (2023). Strategic and Financial Analysis of Nike Based on the Harvard Analysis Framework. Highlights in Business, Economics and Management, 23, 1012-1020. https://doi.org/10.54097/pj2a4z51

Responding to person 2

Hello,

Thank you for sharing your post with us. I find your post to be thoughtful and well-researched regarding Bark Inc.’s reporting on depreciation and amortization. Your thoughts regarding the observed increase in reported expenses are quite commendable. There is a need to explore whether the increased investment in tangible assets is achieved at the expense of other investments, such as those of physical properties and equipment.

Notably, this is so because more companies in the sector have adopted a shift towards digital platforms where intellectual property and other intangible assets are more significant (Van Criekingen et al., 2022). Your post has helped me to understand how reporting is approached at Bark Inc. where financial statements are broken down into “General and Administrative” expenses. I notice that just like Nike, Bark Inc. embraces the straight-line depreciation method. Notably, this prompts me to put more effort into evaluating how the method is applied to varying natures of assets.

Reference

Van Criekingen, K., Bloch, C., & Eklund, C. (2022). Measuring intangible assets—A review of the state of the art. Journal of Economic Surveys, 36(5), 1539-1558. https://doi.org/10.1111/joes.12475

ORDER A PLAGIARISM-FREE PAPER HERE

We’ll write everything from scratch

Person 1

Company Name: Nike

1. In Nike’s most recent 10-K, they report items related to depreciation, depletion, and amortization in their Consolidated Statements of Cash Flows. The lines for depreciation and amortization are both under the category of “adjustments to reconcile net income to net cash provided (used) by operations.” If talking about the income statement, they aren’t specifically listed but are included in the lines of “cost of sales” and “selling and administrative expense.” After reading and studying the chapter, companies should and are required to be reporting depreciation and amortization through operating activities under the Statement of Cash Flows.
   As it was also mentioned in the income statement under a broader category, depreciation and amortization must be included under some type of functional expenses. For specific circumstances, reporting must be made for certain things such as if Nike decides to change its depreciation method or if impairment charges for tangible/intangible assets were to occur.
2. What stands out to me on Nike’s reporting on this topic is that they use a straight-line depreciation method. Using a straight-line method is probably the right choice though as it presents simplicity and consistency. Another thing that stands out to me as mentioned in the prior question is that depreciation and amortization do not have their own specific lines on their income statement.
   Instead, they are just included into a broader expense category. One question that I have regarding an element of their reporting is why doesn’t Nike create specific lines for depreciation and amortization on their income statement?
3. Nike uses a straight-line method for depreciating things regarding property, plant, and equipment. It was stated that they also use this method for amortizing intangible assets with finite lives. Like I mentioned before, using a straight-line method provides simplicity and consistency.
   This method also provides easy expense calculations over the life of an asset. Many different companies tend to use this method as well. After reading through Nike’s reports and the textbook chapter, Nike should continue using the straight-line method.
   

   Peer Responses

Person 2

Company Name: Bark, Inc.

1. The statement of cash flows reports depreciation and amortization as a single line called “depreciation & amortization”. The balance sheet will include the asset being depreciated or amortized. It does not have a specific line but is indirectly included. On the SEC website, if you click on the “Property and Equipment – Net” line, it states, “Amount, after accumulated depreciation and amortization, of property, plant, and equipment and finance lease right-of-use asset.”.
   The “Intangible Assets-Net” line states, “Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges.”  The Income statement will reflect the expense related to depreciation and amortization, as well as any gain or loss on the sale or disposal of assets. The company does not report depletion because it is associated with natural resources, and Bark, Inc. operates in the pet products industry. The notes to the financial statement provide additional details on the depreciation and amortization.

A company is required to disclose depreciation expense for the period, balances of major classes of depreciable assets by nature or function, accumulated depreciation either by major classes or in total, and a general description of the method or methods used in computing depreciation. (Text Book pg 11-17) Reporting that will only happen under specific circumstances include partial year depreciation, a change in depreciation methods, and cost related to an asset retirement obligation.

1. What stood out to me is how their depreciation and amortization line on the consolidated statement of cash flow is growing, meaning the reported expense has increased over time. When I look at the balance sheet, it appears that the intangible assets have grown, but the property and equipment decreased. In total, their assets in 2024 decreased from 2023.
   Maybe they have older equipment whose asset value is low, therefore creating this situation, or there have been disposals or impairments? The income statement’s “General and Administrative” (They state they report it in this line, see below) was higher in 2023 and 2022 so I would suspect disposals or retirement of old assets and assume they have more old equipment that is at a lower value.
2. Bark, Inc uses the straight-line method over the estimated useful lives of the property & equipment assets. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. When they sell or retire the asset, the cost and related accumulated depreciation and amortization are removed from the consolidated balance sheets and the resulting gain or loss is reflected in general and administrative expenses in the consolidated statements of operations and comprehensive loss.
   Below that section, the note lists assets classes and the useful life of each category. Below that, they discuss intangibles and how they allocate certain costs with them.

BARK, INC (3/31/2024). Annual report (Form 10-K). U.S. Securities and Exchange Commission. Retrieved from https://www.sec.gov/Archives/edgar/data/1819574/000181957424000025/bark-20240331.htm

Wahlen, James, et al. Intermediate Accounting: Reporting and Analysis, 4^th ed., CENGAGEL,  2023.

Reply to Thread