The new deal and government intervention Essay Example | Topics and Well Written Essays - 500 words

The new deal and government intervention - Essay Example The New Deal was a cycle of economic programs put into operation in the United States between 1933 and 1936. They were approved by the U.S. Congress during president Franklin Roosevelt’s first term. The programs were Roosevelt’s reaction to the Great Depression: historians call them â€Å"3Rs†. That is Relief, Recovery, and Reform: Recovery of the economy to standard levels, Relief for the broke and jobless, and Reform of the financial structure to thwart a duplicate depression. The New Deal shaped a political realignment making the Democratic Party the majority, with its foundation in open-minded ideas, large city machines, and the recently authorized labor unions and racial minorities (Leuchtenburg 12-21). Most historians, such as Thomas A. Bailey, make a distinction between the â€Å"First New Deal† and the â€Å"Second New Deal†. A number of programs were announced unconstitutional, and some were revoked during the World War II. The First New Deal dealt with varied parties, from industry and farming to banking and railroads. This set of groups required assistance for economic recovery. The Second New Deal incorporated the Wagner Act to sponsor the Social Security Act, the labor unions, the Work Progress Administration relief program, and new programs to assist lessee farmers and immigrant workers (Johnson 15-20). The Civil Works Administration was produced in 1933 to create jobs for the jobless. Its concern with high paying jobs in the construction field amounted to better expenditure to the federal government than was formerly expected. The Civil Works Administration ended in 1934 due to, in part, resistance to its cost. Federal Housing Administration was a government agency formed to fight the housing predicament of the Great Depression. The huge figure of unwaged workers united with the banking predicament created a scenario according to which banks retracted loans. The

Management consultant Essay Example | Topics and Well Written Essays - 2000 words

Management consultant - Essay Example It is not possible for a management consulting firm to render services in a domain in which it has no expertise. This will not only create a bad reputation in the market about the consulting firm but it would also not be able to retain its customers. This might adversely affect its business prospects. So while choosing clients a management consulting firm needs to chalk out the areas where it can offer management solutions to its clients. Identification of potential client organisations can be effectively done by choosing proper market segmentation strategies based on the nature of services offered by the organisations, the type of product it manufactures, its market position and the overall size of the company. In order to attract clients, proper promotional strategies such as various forms of advertising, should be adopted by the management consultancy firm. The consultancy firm would decide on such strategies by identifying the areas where it has expertise. This can be done by undergoing a thorough internal research and will be followed by enlisting the nature of services offered by it to its clients, the type of solutions provided, whether it is solely IT based or they act as change consultants, or act as catalysts in triggering certain changes within an organisation. Such things should be specifically and clearly mentioned by the consultancy firm so that in future it does not result in ambiguity. This informatio n would help the client organisations to understand the nature of services provided by the management consultancy firm and if they feel that their need matches with the expertise of the consultancy firm, then they would seek its help. Moreover, seminars on common management problems, which may be faced by most of the organisations, and the possible solutions to mitigate its effect, would help the management consultancy firm to attract increasing number of clients. The management consultancy firm needs to be up to date with the changes that are occurring in the area where it proposes to offer solutions so that it can earn the trust and the confidence of its clients. To make a more profound effect on the potential clients, the management consultancy firm must hire external experts to express their point of view on a common problem area faced by most organisations and this can be followed by a junior consultant's presentation in support of the views expressed(Kolli S., 2000.). This wou ld help the consultancy firm to convey the message to its clients that it is capable of providing the necessary solutions needed to help the client organisation register higher growth. To identify potential clients, being a management consultant, the help of various directories would be taken. These directories gives an overview of the type of business that the potential client organisations are presently in and provides the address and the contact details to the consultancy firm. This acts as a guide for the consultancy firm to reach its clients and find out whether any type of consulting services is required by them or not. Management consultancy had become a need of almost every organisation which wants to cope with the changing needs of the business scenario. The roles played by the consultancies usually differ from being just a catalyst, to being a mentor or a

Puc18 Plasmid Engineering

Puc18 Plasmid Engineering Abstract The objective of the experiment was to engineer a pUC18 plasmid so that it contained a kanomycin resistance gene in its multiple cloning site and to transform it into cells. The kanomycin resistance gene was obtained from a pKAN plasmid. The desired plasmid was constructed by digesting pUC18 and pKAN with the same restriction enzymes,(BamHI and HindIII) and religating the products to give the engineered pUC18. The created plasmid was then transformed into E.coli strains DH5ÃŽ ±. The strains that contained the engineered plasmid were selected using two methods of selection. According to the indirect method of selection the percentage of competent cells transformed with the plasmids was 0.063% which is a low number. According to the direct method of selection on the other hand no cells were transformed. In conclusion even though some colonies with the engineered plasmids were obtained the percentage of cells transformed was very low. Also, the indirect method of selection gives better results for selection of desired strains. Introduction Bacteria can carry antibiotic resistance genes either in their chromosomes or extrachromosomally in phage or a plasmid(Hausner and de Jong 2010). B-galactosidase is an enzyme involved into the cleavage of lactose into glucose and galactose and is encoded by the lac Z gene of the lac operon.(Glick et al 2010) The lac operon is prevented from being transcribed through repression of the lac promoter. Activation of this promoter can be done by the addition of lactose or isopropyl-ÃŽ ²-D-thiogalactopyranoside(IPTG) to the medium. Lactose and IPTG simply prevent binding of the lac repressor(the product of the Lac I gene) to the promoter. (Glick et al 2010) In the following experiment plasmids pUC18 and pKAN are used to provide the genes to be transformed into bacteria. pUC18 is 2686 base pairs(bp) long and contains a bacterial origin of replication, an ampicillin resistance gene, a lacI gene, a segment of the lac Z gene encoding part of B-galactosidase(which breaks down X-gal) and a multiple cloning sequence(MCS) that is within the lac Z gene.(Glick et al 2010) The lac Z gene encoded by the plasmid is part of the B-galactosidase protein which complements a gene carried by the Escheria. coli chromosomally thus forming a functional B-galactosidase.(Glick et al 2010) If a DNA segment is cloned in the MCS then the lacZ gene will be interrupted and will not give rise to a functional protein. If that occurs then the Bacteria transformed with the plasmid will not break down5-bromo-4-chloro-3-indolyl-ÃŽ ²-D-ÃŽ ²-galactosidase( X-gal) present in the plates. When X-gal is broken down by ÃŽ ²-galactosidase it turns blue whereas when it is not bro ken down it stays white. This color differentiation is a way to tell if there has been any DNA incorporated in the MCS of pUC18. Finally in order for the ÃŽ ²-galactosidase in pUC18 to be transcribed, IPTG has to be present in the medium so that the lac operon can be induced.(Glick et al 2010) pKAN plasmids can serve as sources for the kanomycin resistance gene. In the following experiment the kanaomycin resistance gene will be inserted in the MCS of pUC18. pKAN contains an origin of replication, a kanomycin resistance gene and multiple restriction sites.(Hausner and de Jong 2010) More importantly it contains only one BamHI and HindIII recognition sites in the whole plasmid which flank the kanomycin resistance gene.(Hausner and de Jong) This allows researchers to cut out the antibiotic resistance gene by simply using BamHI and HindIII producing only two fragments of DNA: the gene and the rest of the plasmid. Once experimenters have inserted the pKAN gene into the MCS of pUC18 and transformed the E.coli strains they need a way to select for the desired plasmid. There are two methods to select for the desired those colonies: the direct method and the indirect method. The direct selection method involves spread plating transformed strains into plates containing both the antibiotic ampicillin and kanomycin. (Hausner and de Jong 2010) Since the pUC18 plasmid confers amplicillin resistance(Glick et al 2010) and the kan gene confers kanomycin resistance (Hausner and de Jong 2010) then only the cells that contain Puc18 with the kanomycin resistance gene should be able to grow in these plates. The indirect method on the other hand is a two step selection process. In the first step the transformed strains are plated onto LB plates containing ampicillin and X-gal.(Hausner and de Jong 2010) Only the cells that have up-taken pUC18 will grow since they will be resistant to ampicillin. Furthermore cell s that contain pUC18 with inserted DNA in the MCS will produce white colonies since they cant produce a functional ÃŽ ²-galactosidase. Cells that give rise to blue colonies will have up-taken pUC18 without any DNA inserted in their MCS since they are able to break down X-Gal. (Glick et al 2010) To select the cells with pUC18 containing the kanomycin resistance gene the white colonies are plated in plates containing kanomycin. Only the cells that have the kanomycin resistance gene in their pUC18 will grow.(Hausner and de Jong 2010) The objectives of the following experiment include the construction of a pUC18 plasmid containing the kanomycin resistance gene in the MCS, the transformation of that plasmid into the E.coli DH5ÃŽ ± cells and the selection of the cells containing the engineered plasmid. If both pUC18 and pKAN plasmids are digested with BamHI and HindIII and the digests are ligated then a plasmid which contains both kanomycin and ampicillin resistance genes should be produced; consequently cells transformed with the engineered plasmid should be resistant to both antibiotics. Materials and Methods Plasmid extraction and plasmid engineering pUC18 and pKAN plasmids were extracted from the DH5ÃŽ ± and MM294 E.coli strains respectively using a DNA isolation kit as described by (Hausner and de Jong 2010). Confirmation for proper extraction was done through agarose gel electrophoresis by running the extracted DNA in a 0.7% gel at 100V for 1 hour. The gene containing kanomycin resistance from pKAN was cloned into pUC18. The restriction digests to do the cloning were prepared as described in Table 2 in (Hausner and de Jong 2010). After plasmid digestion the kanomycin resistance gene was inserted into the multiple cloning sequence of pUC18 in a ligation reaction using the enzyme ligase and the reaction was allowed to go to completion for 24 hours at room temperature. The ligation reactions were set up according to table 3 in (Hausner and de Jong 2010) E.coli transformation and strain selection E.coli strain DH5ÃŽ ± was sub-cultured for 1 hour at 37Â °C. The cells were then made competent by washing them in 10mM CaCl. Next cells were transformed with three different combinations of plasmids. The set of cells in tube 1 was transformed with uncut pUC18 DNA. The set of cells in tube 2 was transformed with cut pUC18. Cells in tube 3 were transformed with pUC18 containing the cloned pKAN resistance and finally cells in tube 4 were transformed with just water as a negative control. The transformation procedure has been described in (Hausner and de Jong 2010). Transformed cells from all tubes were spread plated onto LB+carb+X-gal plates for indirect selection. Furthermore cells from tube 3 were plated onto LB+carb+ kan plates for direct selection of cells containing pUC18 with the insert from pKAN. To determine the density of competent cells cells dilutions of , and were prepared. The two highest dilutions were plated onto LB plates. All the plates were incubated at 37Â °C and they were allowed to grow for ~24 hours. After the colonies had grown on plates plate they were counted and their numbers were recorded. White and blue colonies from the LB+carb+X-gal plates were then streaked onto LB + kan plates to obtain the colonies that had the kanomycin resistance gene incorporated in the MCS. For more information on the procedure refer to Experiments in Biotechnology Laboratory Manual (Hausner and de Jong 2010) Results Extraction of plasmids from E.coli strains Figure 1 contains the image of the 0.7% agarose gel in which the isolated plasmids Puc18 and pKAN were run to check for product. As it can be seen in lane 1 a lot of Puc18 was extracted from the DH5ÃŽ ± strain. Less plasmid DNA was collected for pKAN from the MM294 strain since the band in lane 2 is of much weaker intensity. There is more than one band in lane two. The additional bands represent additional plasmids isolated from the bacteria. Calculation of Competent cell density Table 1 shows the dilutions performed on the competent cells in order to calculate their cell density. It also shows the number of colonies on the plates that were spread plated with dilution 2 and dilution 3. The results for the dilution were not used for cell density calculation since less than 30 colonies grew on the plate. Dilution was used to calculate the cell density because the number of colonies was between 30 and 300. Indirect method of selection Cells plated from tubes 2 and 3 were used to calculate the % of transformed cells. Every colony represents a single transformed cell since it can be assumed the every colony has arisen from a single cell. Furthermore for tube 3 since five plates were spread plated the percentage of the transformed cells was obtained by using the average amount of colonies for all five plates. Calculation the percentage of transformed cells in tube 2: %of transformed cells= x 100 =0.0045% of cells transformed Calculation of transformed cells in tube 3 Average for blue colonies: = 58.6 ≈ 59 blue colonies Average for white colonies = 11.4 ≈ 11colonies Total number of colonies = 59 blue colonies + 11 blue colonies = 70 colonies in total Both blue and white colonies from tube 3 represent transformed cells since they both up-took plasmid DNA whether it was just pUC18 or pUC18+kanomycin resistance gene. Therefore since every colony came from a single cell there were 70 cells in total that were transformed from 100Â µl of media spread plated in each plate. % of transformed cells in tube 3: %of transformed cells= x 100 =0.063% of cells transformed Direct selection of clones containing the kanomycin gene: No colonies grew on LB + carb + kan plates. That means that there were no cells that were transformed with the engineered plasmid. Furthermore an accurate number for % of transformed cell could not have been calculated even if cells had grown in these plates. That is because this selection method takes into account only the cells that were trasformend with pUC18 which contained the kanomycin resistance gene and not the cells that were transformed with only pUC18. Discussion Isolation of plasmids from cells The optimal results for the gel would have been to see one strong band at ~2.7 kb representing pUC18 and one strong band at 4.2 kb which represents pKAN. For the pKAN lane there is more than one band seen. Those bands represent different sized plasmids that were also isolated from the cell. Since there was no DNA ladder on the gel it cannot be concluded what plasmid the lanes represent but the only thing that can be concluded is that there was plasmid DNA isolated from both the DH5ÃŽ ± and the MM294 strains which most likely was pUC18 and pKAN. In order to conclude whether pUC18 and pKAN plasmids were isolated from the bacteria the students should be provided next time with a DNA ladder in order to determine the sizes of the lanes. Indirect selection method The cells from tube 1 were transformed with un-digested pUC18. The cells from this tube represented a positive control for transformation. The colonies in the plates were all blue and they were too many to count. The reason for the high number of colonies was that these cells were transformed with undigested plasmids which are all stable and all allow bacteria to carry information extrachromosomally, making the transformation percentage of competent cells very high. All the cells from tube 1 produce blue colonies. That is because they all had a functional B-galactisidase since no genes were cloned into the multiple cloning site located within the lacZ gene. The cells from tube 2 were transformed with digested pUC18 plasmid. The cells from this tube represented a negative control for kanomycin resistance gene cloning. Tube 2 gave rise to very few colonies in comparison to tube 1 because the cells in tube 2 were transformed with unstable DNA. pUC18 had been previously digested with HinDIII and BamHI and a lot of plasmid did not re-ligate and for that reason the DNA was unstable. Since the DNA was unstable it was not able to maintain the ampicillin resistance gene in bacteria and consequently the strains were not able to grow in carbonicillin plates. As a result the number of percent transformed cells was as low as 0.0045%. The cells from tube 4 were transformed with sterile water i.e no DNA. These cells represented the negative control for transformation. Because no DNA was inserted in them none of the cells contained the ampicillin resistance gene and as expected none grew in the plates containing carbomicillin. The cells from tube 3 were transformed using pUC18 that contained insertion on the MCS as well as pUC18 that didnt. All five plates that were spread plated with E.coli from tube 3 contained blue colonies as well as white ones. The reason for the color difference is that the blue colonies contained a functional ÃŽ ²-galactosidase whereas the white ones didnt. The functional ÃŽ ²-galactosidase in the blue colonies was due to the fact that no DNA was inserted in the MCS to interrupt the lacZ gene. The white colonies on the other hand did not contain a functional ÃŽ ²-galactosidase since they had a DNA insertion in their multiple cloning site, which interrupted the lacZ gene. Consequently they could not break down X-gal. However just because they had a DNA insertion in their MCS it did not mean that they contained the kanomycin resistance gene. They might have contained the rest of the pKAN plasmid. As a result the white colonies needed to be streaked into plates that selected for kanomy cin resistance. If the cells then grew on LB + Kan plates and they also originated from white colonies on LB + Carb + X-gal plates then they contained a Puc19 plasmid with a kanomycin resistance gene inserted in the MCS. The percentage of transformed cells was also not very high: 0.063%. A way to improve this would be to maybe increase the molarity of the CaCl solution to make the cells more competent. Direct selection method According to the direct method of selection there were no cells that were transformed. This is contradictory to the results obtained from the indirect method of selection. This error could have been produced because of either improper spread plating of plates or because of improper transformation procedure. Also the conditions in the LB + carb + kan plates could have been too harsh(two antibiotics) for the bacteria to pick up growth even if they were resistant to both antibiotics. In following experiments it is better to use the indirect selection method since it seems more successful in selecting desired strains. Comparison of direct VS indirect selection methods The direct and indirect selection methods have both advantages as well as disadvantages. The main disadvantage of indirect selection is that it takes longer since it contains two steps and each step takes at least a day for completion. The main advantage is that if done correctly, the indirect selection methods gives very accurate selection for the desired cells. The reason for that is that first it selects for colonies that just have an insertion in the MCS and this tells the researcher that some type of cloning has occurred in plasmids. The second step then selects for the colonies that contain pUC18 with the kanomycin resistance gene inserted in the MCS. Thus the criterion of indirect selection is that cells have both pUC18 with an inserted DNA in MCS and also have kanomycin resistance. The colonies that grow in the second step fulfill both the criteria. The main advantage of the direct method is that it takes a shorter time to complete and it also uses up less equipment which can also save researchers some money. The main disadvantage with this selection is that it has a higher chance of giving false positives. Direct selection does not select for strains that have DNA inserted in the MCS of Puc18 but only selects for strains that have ampicillin and kanomycin resistance. Therefore the strains that grow in LB + carb + kan plates might have both pUC18 and pKAN plasmids but not the kanomycin resistance gene inserted in the pUC18 MCS. Those strains would still be able to grow since they still have both ampicillin and kanomycin resistance. However the genes would on different plasmids and not on the engineered one. Therefore even though the indirect selection method is longer it is more accurate in selecting the desired strains for this experiment. In conclusion, according to the indirect selection the desired plasmid was engineered by digesting both pUC18 and pKAN with HindIII and BamHI. Also when selecting for cells transformed with pUC18 it is better to employ the indirect method of selection because it gives more accurate results. Question 1: Although both lanes contain plasmid DNA, why doesnt the DNA appear to be in the same location in both lanes? The DNA does not appear in the same location in both lanes because pUC18 and pKAN are of different sizes. pUC18 is 2686 base pais long whereas pKAN is 4194 base pairs long.(Hausner and de Jong 2010) Because pUC18 is of smaller size it will travel farther from the wells than pKAN. Question 2: How would you verify that the transformed cells actually contain the carb/kan plasmid that was used for transformation? One accurate way would be to isolate the plasmid DNA from the transformad cells and run it on an agarose gel. If the kanomycin resistance gene was inserted into pUC18 then on the gel one will be able to see a band of the size 4548 base pairs which is different from both the pUC18 and the pKAN plasmids. The size of the created plasmid was calculated the following way by obtaining the information from (Hausner and de Jong 2010): To find the size of kanomycin resistance gene inserted in pUC18, the number of base pairs from the origin or replication of HindIII was subtracted to the number of base pairs from the origin of replication of BamHI. This was done because pKAN was digested with HindIII and BamHI to obtain the kanomycin resistance gene: 2095 233 = 1862 base pairs The size of the insert was then added to the size of Puc18: 2686 + 1862 = 4548 base pairs

Business Management Essay -- Business Management

Business Management   Ã‚  Ã‚  Ã‚  Ã‚   The world of business has undergone radical and dramatic changes in the last decade changes that present extraordinary challenges for the contemporary manager. A manager is an organizational member who is responsible for planning, organizing, leading, and controlling the activities of the organization so that the goals can be achieved. According to a widely referenced study by Henry Mintzberg, managers serve three primary roles: interpersonal, informational, and decision-making. Management is process of administrating and coordinating resources effectively and efficiently in an effort to achieve the goals of the organization.   Ã‚  Ã‚  Ã‚  Ã‚  The concept of management within an organization typically occurs in an organizational setting. Organizations compromise a group of individuals who work together toward common goals. The concept of management within an organization can also be looked upon as a context as well as a process. Within the process of management there are four major functions planning, organizing, leading, and controlling. Managers at all levels of the organizational hierarchy must engage in planning. Planning involves setting goals and defining the actions necessary to achieve those goals. In planning the top-level manager establishes the overall goals and strategies for the organization. While on the other hand the other managers in the hierarchy develop operational plans for their work groups, which has a responsibility to help the organization. All the managers must develop goals that are supportive in the over all strategy of the organization. Organizing involves determining the tasks to be done, which will do them, and how those tasks will be managed and coordinated. Managers of an organization have to put a work team together so that proper information, resources, and tasks can flow properly and efficiently in an organization. Managers should be able to lead the members of their work groups toward the accomplishment of the organization’s goals. Leading is defined as motivating and directing the members of the organization so that they contribute to the achievement of the goals of the organization. In order for leaders and managers to be effective they must understand the dynamics of individual and group behavior, to be able to motivate their employees, and be effective communicators. It is said that a good ... ...by using job rotation; job rotation is the assigning of jobs to individuals to a variety of job positions once they have mastered their original job. Another way to help an organization or manager in dealing with quality is by assigning self managed teams. A self-managed team is a group of employees who design their job responsibilities to achieve the self-determined goals and objectives of the team. With these teams the organization may be able to run more smoothly and less pressure will be on the middle manager, or the first-line manager. Finally another way to control quality effectively is by using (TQM) total quality management. Total Quality management is a systematic approach for enhancing products, services, processes, and operational quality control.   Ã‚  Ã‚  Ã‚  Ã‚  Quality is a very important thing in an organization; therefore it is not possible to improve the quality of a product or service substantially without major changes in all aspects of the organization. Because quality is so important if changes aren’t made throughout the organization the output of the product will no be very successful. Everyone in the organization plays a major role in the out come of its products.

Fixed Assets

Accounting for Fixed Assets Accounting for Fixed Assets Second Edition Raymond H. Peterson John Wiley & Sons, Inc. Copyright  © 2002 by John Wiley and Sons, Inc. , New York. All rights reserved.No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4744.Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc. , 605 Third Avenue, New York, NY 10158-0012, (212) 850-6011, fax (212) 850-6008, E-Mail: PERMREQ @ WILEY. COM. This publication is designed to provide accurate and authori tative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services.If legal advice or other expert assistance is required, the services of a competent professional person should be sought. This title is also available in print as ISBN 0-471-09210-X. Some content that appears in the print version of this book may not be available in this electronic edition. For more information about Wiley products, visit our web site at www. Wiley. com To a number of people who influenced my life and prepared me for the job of creating this book: First, my mother, who not only taught me to read, but allowed me to experience the enjoyment of reading.She opened up for me the vast knowledge available in libraries. Dr. Wade Moorehouse, retired Professor of Accounting and former Chairman of the Department of Business and Economics at California State University, Hayward, who many ye ars ago, when I was an undergraduate student in his accounting course, stimulated my excitement about the accounting function. Blessed with classes of fewer than six students in a new university, we spent many class hours discussing the theory of accounting.These discussions had a large impact on my career direction. Earl Malone, a District Accounting Manager, who early in my career forced me to develop my own thoughts and not just rely on past practice. He also forced me to aquire the skill of dictation, which made the creation of this book a possibility. Dodie Peterson, world’s best secretary, who converted my ramblings into a manuscript. Contents About the Author Preface Chapter 1 What Is Accounting for Fixed Assets?Introduction Consumption of Benefits Characteristics of Assets Need to Change Chapter 2 What Is an Asset? Introduction Historical Cost Matching Principle Fixed Assets Property Plant Equipment Defining Assets Government Accounting User Fees Not-for-Profit Accoun ting xv xvii 1 1 3 4 9 11 11 12 13 14 16 17 18 20 22 24 24 vii viii Contents Chapter 3 Classifications of Asset Transactions Introduction Classification Systems Accounting Policy Decisions Coding of Transactions Property Record Coding System 7 27 28 31 33 34 39 39 39 40 44 47 48 49 49 52 52 54 54 55 55 56 57 58 58 59 59 Chapter 4 Determining Base Unit Introduction Definition of Base Unit Purpose of a Base Unit Establishing Base Units Decision Rules Difficulties in Establishment Land Buildings Equipment Criteria for Establishing Base Units Examples Spare Parts Chapter 5 Control of Property, Plant, and Equipment Introduction Asset Accountant Asset Custodian Inventories Property Record System Identification of Assets Farm Owner Applied Numbers Contents ixIdentification of Specific Asset Items to Be Tagged Bar Coded Tags Security Chapter 6 Asset Policies Manual Introduction Purpose Creating the Manual Partial Sample Manual Use of the Manual Property, Plant, and Equipment Custodianâ€⠄¢s Responsibilities Responsibilities of Asset Accountant Procedures for Purchase of Physical Assets Approval Limits Minimum Capitalization Level Items Always Charged to Expense Account Transaction Reports Data Definitions Chapter 7 Establishing Value Introduction Historical Cost Other Values Uses of Values Insurance Collateral for a Loan Purchase or Sale of a Complete Business First Creation of Property Record 0 61 64 65 67 67 67 69 69 72 72 73 75 75 75 76 76 77 83 83 84 84 85 86 86 87 87 x ContentsValuation Techniques Management Information Periodic Assessment of Value Chapter 8 Allocation of Costs to Accounting Periods Introduction Costs of Using up Assets Depreciation Estimated Life Cost Basis Allocation Methods Accelerated Depreciation Other Depreciation Concerns Tax versus Book Depreciation Balance Sheet Disclosure Not-for-Profit Organizations Chapter 9 Regulated Utilities Introduction Differences in GAAP Telecommunications Accounting Basic Property Record Telecommunications P lant in Service Chart of Accounts Railroads Property Accounts Cost of Construction Units of Property List of Units of Property Accounting for Engineering Costs 88 89 90 93 93 94 95 95 96 97 98 99 100 101 101 105 105 106 106 107 109 110 111 111 114 114 115 Contents xiCommon and Contract Motor Carriers of Passengers Carrier Operating Property Depreciation Minor Items Uniform System of Accounts—Tangible Accounts Account Definitions Chapter 10 Government Accounting Introduction Measurement Focus Fund Accounting Funding for Government Assets Accounting Standard Setting Measuring Service Efforts and Accomplishments Current Government GAAP Property Records Infrastructure Assets Measurement of Utilization Establishing Property Record Establishing Property Record Units Infrastructure Property Units Planning Accounting Policies Software Selection Off-the-Shelf Software Chapter 11 Not-for-Profit Accounting Introduction Accounting Definition of Not-for-Profit Organizations 117 117 117 11 9 119 119 123 123 124 125 126 126 127 128 128 129 130 131 131 131 132 133 134 135 135 136 xii ContentsAccounting Problems of Not-for-Profit Organizations Formal Accounting Standards Need for Change in Not-for-Profit Accounting Accounting for Property, Plant, and Equipment Creating Property Records Property Record System Documentation Chapter 12 Creation and Verification of Property Records Introduction Purpose of Property Record New Concept Requirements for a Physical Asset Database Property Record Units Coding Systems Property Record Codes for Motor Vehicles Other Codes Required Property Record ID Number Maintenance of the Property Record Database Responsibilities of Asset Manager Updating Records Recording Maintenance Costs Verification of Physical Existence Military Commander Approach Foreign Corrupt Practices Act Fully Depreciated Assets Reports from the Property Record System Chapter 13 Computer Programs Introduction Asset Database Software 138 139 140 141 143 145 147 149 149 1 50 151 152 155 155 156 156 157 158 158 159 160 161 161 163 164 165 167 167 167One-Write Systems Existing Database Programs Software Selection Off-the-Shelf Property Record Database Packages Review Copies of Software Evaluation of Software Packages Program Review Checklist for Program Review Database Fields Bibliography Index 168 169 169 170 170 171 172 175 176 179 185 xiii About the Author Raymond (Ray) H. Peterson is currently the senior partner of Ray Peterson & Associates, a consulting firm offering business assistance in establishing and changing accounting systems. He has served as the treasurer of a number of nonprofit organizations. He has over thirty years experience as a management accountant with the Bell System. He retired as Director of Financial Accounting with Pacific Bell. Mr. Peterson has managed the design of Pacific Telephone and Telegraph Companies detail property records.During the three-year breakup of the Bell System, he was appointed to a Federal Communication s Commission task force to create a new uniform system of accounts for telephone companies. The proposed system was adopted by the FCC and was installed in all telephone companies. Mr. Peterson served for 12 years on the Institute of Management Accountants Financial Accounting Standards Committee and its predecessor Subcommittee on Management Accounting Statement Promulgation. He received a BS from California State University at Hayward and an MBA from Golden Gate University in San Francisco. He also taught accounting and management information systems at Golden Gate University. xv PrefaceSince the first edition of this book in 1994, not much change has occurred to accounting standards for Property, Plant, and Equipment in business. The GAAP promulgated by the Financial Accounting, FASB, has been to further the concept of identifying the cost of an asset and spreading that cost over the accounting periods that benefit. Accounting for contributions, impairments, and financing of asse ts have been addressed by the FASB. In contrast, much has happened in the areas of Not-for-Profit and Government accounting for fixed assets. FASB ordered the capitalization of assets and charging of depreciation by Not-for-Profits. The government Accounting standards Board was created as an equal to the FASB with the authority and responsibility to promulgate GAAP for governments.They replaced the Government Finance Officers Association and its â€Å"Blue Book†, Governmental Accounting, Auditing, and Financial Reporting as the â€Å"official† accounting rules for State and Local government. An early step by the new GASB was to suspend depreciation for â€Å"government† not-for-profit accounting. There was a determination of jurisdiction between FASB and GASB which are outlined in Chapter 10, â€Å"Government Accounting† and Chapter 11, â€Å"Not-For-Profit Accounting. † Then the GASB issued concept papers that moved government accounting toward th e practices long held as appropriate for businesses. These concept papers state that assets should be placed on the books at acquisition cost and that cost spread over the accounting periods they benefit. This is a major change in accounting for these groups.Past practice was for assets to be purchased and expensed in the current period, if purchased with general revenue, or not even recorded if purchased with bonds or other special revenue sources. There was considerable argument that these changes were not appropriate for governments. Implementation of GASB statement 33 and xvii xviii Preface 34 were delayed, but are now being implemented. The accounting for governments is not the subject of this book and government accountants are referred to GASB and GFOA publications in the bibliography for the details. However, some discussion is included because it will be of interest to the business accountant that is establishing accounting policy for business and not-for-profit organizatio ns.There has been considerable argument that fixed assets of businesses should be recorded on the books at something different than depreciated original cost, that adjustments should be made to reflect the market value up as well as down, and that book asset accounting should be changed from cost allocation to reflect some measurement of value. The public review and promulgation process of the GASB provide rebuttals to all of those arguments. I urge any accountant that holds those views to research the process that GASB statements 33 and 34 followed, much of which is available on the web site at http://www. gasb. org. This book is designed for accountants and managers who want to get the most from the physical assets of their organizations. Most readers are already familiar with the oncepts and practical application of total quality management (TQM) zero defects, and the other procedures that describe a continued process of improvement. Having made the process and management changes that brought about easy improvements in quality and cost reduction they are ready to answer the following questions: How are you applying the principles of continuous improvement to the management of property, plant, and equipment? Do you have a process in place that allows you to monitor the status of maintenance (or deferred maintenance) on your property, plant, and equipment? What is the age of the oldest piece of your production equipment? Do you have a plan in place for replacement of production facilities?Are there any quality problems in your production or service delivery system caused by property, plant, and equipment failures? What is the utilization percentage of the property, plant, and equipment? Can you determine the utilization of your most expensive piece of equipment? Do you have service or production problems attributable to equipment not being available at the place needed? Are all of your property, plant, and equipment being utilized to their fullest? Preface xi x Do you have in place a process that monitors the current condition, evaluates the future need for replacement, and brings to your attention needs to modify that plan? Do you manage your physical assets or do you put them in place, use them, and replace them when they are worn out?Do your plans include having the necessary cash to purchase replacement physical assets or will you have to do an extraordinary financing or fund-raising when you are surprised by their failure? Is there a plan in place for overall management or do you simply hope your assets will continue to allow you to produce your product or provide your service? The purpose of providing this book on accounting for property, plant, and equipment, is to provide the framework for you to install in your organization accounting processes and procedures that will allow you to manage long-term physical assets. How can a book on assets help answer these questions? All accounting students learn the basics bout assets within v arious accounting courses, however, there really is not much definitive information available on fixed assets in the accounting literature. The Accounting Principles Board and the Financial Accounting Standards Board are both silent on the subject of accounting standards for fixed assets. Lacking a primary source for accounting standards, it is necessary to look to secondary sources, which also contain very little information on the handling of assets. Most accounting textbooks devote only a single chapter to capitalization of assets, and do not cover the subject in depth. Accounting periodicals have focused on valuation of assets, but offer little on specific concepts of capitalization.The issue of valuing at historical cost versus current market price has received considerable interest over the years. Now the FASB has issued statement 93 requiring not-for-profits to use historical cost less depreciation asset accounting. GASB has issued statements 33 and 34 that require that accou nting for all but a few assets. It is even more important to have this single reference to bring all these prospectives together. A number of organizations including the American Institute of Certified Public Accountants, the Institute of Management Accountants, and the Government Finance Officers Association offer courses on capitalization of assets. Most of these courses, however, cover either the tax implications of assets or the valuation question.Little in these courses describes how to establish asset policies, document them in a manual, and apply them within the company. xx Preface During 1989-1990, the National Association of Accountants (now the Institute of Management Accountants) replaced their original Statement on Management Accounting (SMA) on Fixed Assets with two statements relating to accounting for property, plant, and equipment. SMA 4J, published in 1989, described the accounting for property, plant, and equipment, and SMA 4L, published in 1990, covers control of property, plant, and equipment. A research issues publication called the Reporting, Control, and Analysis of Property, Plant, and Equipment was published in 1990.This collection of publications represents the majority of the available information on accounting for fixed assets. As a part of the IMA team coordinating those projects, I became convinced this book was needed. There is a need to emphasize that assets must be managed, not just purchased, used up, and replaced. The objective is to provide not only accounting for assets, but include that accounting in a process that will allow management to get the most out of the company’s investment. It is not always possible to create more debt in order to acquire assets. Therefore, some of our consumption must be sacrificed today in order to provide quality assets for tomorrow.In today’s complex business best quality and maximum utilization are going to give the best return on investment. Accounting for Fixed Assets contai ns more than the routine accounting processes. It also has the management framework that must surround the accounting process. The United States economy has been built since World War II as â€Å"a paper plate society. † We rapidly built our economy based on the philosophy of quick production without much concern for quality. We built automobiles that only lasted a few years, and, in fact, are still building houses in the same way that we did in the early 1950s. They require major renovation every fifteen or twenty years.Many of the houses of the early 1950s are currently the subject of redevelopment districts: they either require major repair or must be ripped out and replaced. We have built a tremendous economy and brought the majority of citizens to the highest standard of living of any culture with this â€Å"doit-quick† philosophy. It created many jobs, especially at the unskilled and semiskilled level, and brought the pleasure of accomplishment and the fruits of labor to the largest segment of U. S. citizens quickly. We have done so, however, for the sake of today and at the expense of tomorrow. But tomorrow has arrived, and we cannot continue to use up our assets. Those assets capable of bringing future benefits must be managed in a way that will allow those future benefits to occur. Preface xxiThe European and Japanese economies have grown much more slowly; jobs and the rewards that come from labors are just now reaching many segments of those cultures. However, the infrastructure base there, the assets like roads, houses, and other buildings, constructed in the 1950s is still in use and not in need of major repairs. A complete difference in philosophical approach was used in building the base for their economies. They have not sacrificed tomorrow for today, but in fact sacrificed yesterday for today—and today has arrived. Assets are those things we purchase today that will bring future benefits. But those assets must be managed to get those future benefits.To compete in a level playing field across the world, instead of in one where we make all the rules, we in the United States must evaluate our present practices. We can no longer afford to put two or three times the percentage of our gross national product into the nation’s dumps each year than competing countries do. We can no longer approach the building and operating of our businesses as we did during World War II. We learned there that we can build things quickly if they are only needed for a few years or are abandoned on the battlefield. Much of our managerial approach to business assets is alarmingly similar: build it, use it, and throw it away.To many, it is even worse than that; we buy it and don’t think about it again until it is worn out or disrupts the production line. Accounting managers must rethink their accounting processes for assets. To be value-added, accounting information must be simple and understandable, and must provide relevant, timely information to those who make decisions based on it. My goal in producing this book is not just to provide a comprehensive treatment of the details of accounting for fixed assets, but also to provide the management accountant with the processes to provide good relevant decision-making information for the officers of the company. Also, I provide the processes that are necessary to manage those assets.The book is organized to allow you to skip over the initial processes necessary to the system, and understand the principles and philosophy that are necessary in managing assets. I will also suggest a different approach to management of assets. An asset is current production that is not used up, and instead provides the means for future productivity. A hundred years ago, assets were known by business people as capital goods. Capital goods are something that must be managed for the future, not just to benefit current quarter earnings. Accounting for Fixed Assets 1 What I s Accounting for Fixed Assets? INTRODUCTION Most accounting professionals believe that all there is to be learned about asset accounting occurred in the introductory course on principles of accounting.Therefore, although this subject can become quite complex, it has not been explored in the accounting literature. In 1984 when the Federal Communications Commission (FCC) called for the rewriting of the uniform system of accounts for telephone companies, public utilities had not been following generally accepted accounting principles (GAAP) as outlined by the Financial Accounting Standards Board (FASB) and its predecessors, but instead used procedures that had been outlined in 1934 by the FCC. The team responsible for making recommendations on the rewriting of the system of accounts established a basic policy that what was to be recommended would comply with current GAAP.The subcommittee responsible for reviewing and recommending procedures for property, plant, and equipment was frustr ated by the lack of definitive information on accounting for assets. The primary sources are very limited. The Accounting Principles Board (APB) and the later FASB have been nearly silent on the subject beyond defining depreciation and historical costs. Accounting Research Bulletin (ARB) 43 was issued in 1953 to summarize all previous GAAP. It requires that depreciation be calculated 1 2 What Is Accounting for Fixed Assets? and disclosed. Most of the additional discussion on tangible assets involved explaining why depreciation is appropriately calculated using historical costs.It is true that management must take into consideration the probability that plant and machinery will have to be replaced at cost much greater than those of the facilities now in use; however, depreciation must not be calculated on the basis of this expected inflation. ARB 43 in paragraph C5 goes on to state: The cost of a reproductive facility is one of the costs of the services it renders during its useful e conomic life. Generally accepted accounting principles require that this cost be spread over the expected useful life of the facility in such a way as to allocate it as equitably as possible to the periods during which services are obtained from the use of the facility.This procedure is known as depreciation accounting, a system of accounting which aims to distribute the cost or other basic value of tangible capital assets, less salvage (if any), over the estimated useful life of the unit (which may be a group of assets) in a systematic and rational matter. It is a process of allocation, not of valuation. After formation of the Accounting Principles Board, APB 6 was issued in 1964 continuing the authority outlined in ARB 43. The Board continued to support the use of historical cost as opposed to inflation accounting: The Board is of the opinion that property, plant, and equipment should not be written up by an entity to reflect appraisal, market or current values which are above cos t to the entity. APB 12, issued in 1967, requires the disclosure of depreciable assets and depreciation.In addition to total depreciation expense and the major classes of depreciable assets, it also requires disclosure of: †¢ Depreciation expense for the period. †¢ Balances of major classes of depreciable assets by nature of function, at the balance sheet date. †¢ Accumulated depreciation, either by major classes of depreciable assets or in total, at the balance sheet date. Consumption of Benefits †¢ A general description of the method or methods used in computing depreciation with respect to major classes of depreciable assets. CONSUMPTION OF BENEFITS 3 In 1984, the FASB issued Concept Statement 5, which included additional discussion of assets. However, it was also limited in scope, as one would expect in a concept statement.The discussion emphasized the recognition assumption of assets, clearly indicating that assets are consumed by their use and the cost shou ld be recognized in the accounting periods of their life. Consumption of economic benefits during a period may be recognized either directly or by relating it to revenues recognized during the period. Some expenses such as depreciation and insurance are allocated by systematic and rational procedures to the period during which the related assets are expected to provide benefits. â€Å"Any expense or loss (in future benefits) is recognized if it becomes evident that previously recognized future economic benefits of an asset have been reduced or eliminated. Since its creation, the FASB has entertained considerable discussion about assets, but the only statements issued cover specific assets: †¢ †¢ †¢ †¢ †¢ Expensing versus capitalizing research and development The accounting for software Depreciation in not-for-profit organization financial statements Impairment of Assets Involuntary Conversions FASB Concept Statement 6, Elements of Financial Statements, has more material than any other on the accounting for long-term tangible assets. However, it addresses itself primarily to the definition, the purpose of accrual accounting, and the characteristics of an asset. In 1985, Concept Statement 6 added a definition of assets: Assets are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. 4 What Is Accounting for Fixed Assets?CHARACTERISTICS OF ASSETS Concept Statement 6 continues, enumerating the three essential characteristics of an asset: †¢ It embodies a probable future benefit that involves a capacity, singly or in combination with other assets, to combine directly or indirectly to future net cash in flows. †¢ A particular entity can obtain the benefit and control others’ access to it. †¢ The transaction or other event giving rise to the entity’s right to or control of the benefit has already occurred. This is the first discussion in promu lgated accounting rules discussing the definition and characteristics of an asset. The major thrust is that probable future benefit is the definition of an asset.To reflect it on the balance sheet, the entity must be able to obtain benefit from the asset and control others’ access to the asset. This statement also reviews the concept of future economic benefit and service potential as it relates to not-for-profit organizations. It states: In a not-for-profit organization, the service potential or future economic benefit is used to provide desired or needed goods or services to beneficiaries or other constituents, which may or may not directly result in net cash inflows to the organizations. Some not-for-profit organizations rely significantly on contributions or donations of cash to supplement selling prices. . . This discussion introduces the argument that depreciation of tangible assets is an appropriate expense of not-for-profit organizations. In a discussion of accrual ac counting, Concept Statement 6 discusses assets under a heading â€Å"Recognition, Matching, and Allocation. † In paragraph 145, it states: Accrual accounting uses accrual, deferral, and allocation procedures whose goal is to relate revenues, expenses, gains, and losses to periods to reflect an entity’s performance during a period instead of merely listing its cash receipts and outlays . . . the goal of accrual accounting is to account in the periods in which they occur for the effects on an entity of transactions andCharacteristics of Assets other events and circumstances, to the extent that those financial effects are recognizable and measurable. 5 There is a discussion of costs and revenues to determine profits for periods. Depreciation and assets are excluded from the matching concept. Paragraph 149 of Concept Statement 6 explains: However, many assets yield their benefit to an entity over several periods, for example, prepaid insurance, buildings, and various kinds of equipment. Expenses resulting from their use are normally allocated to the periods of the estimated useful lives (the periods over which they are expected to provide benefits) by a rational allocation procedure, for example, by recognizing depreciation or other amortization.Although the purpose of expense allocation is the same as that of other expense recognition—to reflect the using up of assets as a result of transactions or other events or circumstances affecting an entity—allocation is applied if causal relations are generally, but not specifically, identified. For example, wear and tear from use is known to be a major cause of the expense called depreciation, but the amount of depreciation caused by wear and tear in a period normally cannot be measured. This discussion appears to make the distinction between the matching principle for revenues and expenses and the allocation of the cost of using up future benefits. Although this distinction is subtle, it is t he point of basic disagreement between those who argue for inflation accounting and the depreciating of assets based on current market value and those who argue for depreciating using a lesser historical cost.Appendix B of Concept Statement 6 further discusses characteristics of assets, defining assets as â€Å"probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. † Most of this discussion relates to intangible or nonphysical assets. The FASB, in issuing its Statement 2, Accounting for Research and Development Costs, also gives us some information on what makes up tangible physical assets. In their concern for the appropriate accounting for research and development costs, they conclude that all should be charged to expense accounts. However, they do give us their thoughts 6 What Is Accounting for Fixed Assets? bout which tangible assets should and should not be included in research and development costs. A prime consideration is that materials, equipment, and facilities that have an alternative future use (in research and development projects or otherwise) shall be capitalized as tangible assets when acquired or constructed. However, the costs of such materials, equipment, or facilities that are acquired or constructed for a particular research and development project and have no alternative future uses and therefore no separate economic values are research and development costs at the time the costs are incurred. All research and development costs encompassed by the statement are charged to expense when incurred.This reflects the concept that research and development costs will be used up during the span of the research project. Tangible assets that have a life beyond the current project, however, should be capitalized and depreciated over their useful lives. The preceding paragraphs summarize the present state of GAAP relating to property, plant, and equipment. Many subjects in acco unting have not been covered at length within the promulgated statements. Most with the significance of longterm tangible assets have been covered in more detail in secondary accounting material, but few secondary publications provide any indepth discussion on fixed assets.Research bulletins and disclosure drafts having to do with inflation accounting have not been allowed to creep into generally accepted accounting principles. Therefore, in determining the details of an accounting system for property, plant, and equipment with the FCC study in 1984 and 1985, the committee felt it necessary to use the secondary documents on assets. The documents were used to establish current practice and to form a model that telecommunications companies should use instead of the 1934 FCC regulations. The only additional definitive document discussing accounting for property, plant, and equipment was issued by the Institute of Management Accountants (IMA, formerly the National Association of Account ants) as Statement on Management Accounting (SMA) 4.SMA 4 was issued in October 1972 with the title, Fixed Asset Accounting: The Capitalization of Cost. Several concepts outlined in the twenty-four-page statement include the following: Costs through preparation for use Extraordinary repairs Base unit Characteristics of Assets Extended life or increased capacity Written policies Capitalization policy Life greater than one year Self-constructed assets that include direct overhead No initial development cost Depreciation 7 The SMA 4 discusses a number of concepts which were then, and still are, common practice. All Costs to Prepare Item for Use All costs in addition to the invoice price to make an item of property, plant, and equipment ready for use should be capitalized in its historical cost.Extraordinary Repairs Normal repairs are charged to expense when incurred; however, extraordinary repairs that extend the life, increase the capability, or increase efficiency of the item should be capitalized during its life, the historical cost increased, and depreciation recalculated from that date forward. Base Unit The base unit concept is not dealt with in any other document. It outlines the concept that property units should have a policy determination as to what constitutes the property record entity that is capitalized. The base unit might be a complete machine or the individual components of that machine. This concept is important when establishing a usable property record system for a particular company. For example, entities that use light trucks as maintenance vehicles may wear out a number of trucks during the lives of hydraulic lifts, welding equipment, and utility beds.Written Policies It is important for each company to have an asset manual with written policies. Determinations of appropriate base units and other policies unique to a company must be described and documented. Without written policies, asset accounting will not be consistent over a period of time. 8 What Is Accounting for Fixed Assets? Capitalization Policy A minimum level of capitalization should be identified. Accounting records that cost more than the items are worth are not cost effective. Life Greater than One Year Policy should emphasize that items with a life restricted to one accounting period should be expensed no matter what their cost.Self-Constructed Assets All costs of preparing assets for use should be capitalized; however, only directly attributable or traceable overhead costs should be included. General and administrative overhead costs should not be capitalized. If a company is not in the business of constructing assets, overhead costs are not likely to be increased by an individual construction project. Therefore, if those costs were capitalized, expenses in the accounting period that the asset was being constructed would be improperly reduced. Additionally, the initial development cost of making a decision on which project to construct should not be i ncluded in capitalizable costs. Subsequent costs for a specific project, once the decision has been made, are capitalized.Depreciation The idea of the relative permanence of assets that are â€Å"fixed† is questioned by SMA 4. The statement notes that periods of nonuse should be excluded from the depreciation schedule: â€Å"Until these assets can be said to have completely satisfied the purpose for which they are intended— normal or acceptable production capability—they are, for the time being, suspended accounting-wise in a sort of hiatus, not producing income, hence not triggering depreciation against which it is to be set. † SMA 4 was replaced in 1989 and 1990 by Statements 4J, Accounting for Property, Plant, and Equipment, and 4L, Control of Property, Plant, and Equipment.These two documents were prepared from a research project published by the IMA Research Committee, reporting control and analysis of property, plant, and equipment. In other documen ts the discussion of accounting for fixed or physical assets is limited to a chapter, or a few paragraphs in accounting textbooks. No lengthy document has been published that brings all the concepts of accounting for property, plant, and equipment together. Need to Change 9 There are many articles on fixed assets in accounting magazines such as Strategic Finance, published by the Institute of Management Accountants (IMA) and the Journal of Accountancy, published by the American Institute of Certified Public Accountants (AICPA). Most of these articles discuss theoretical issues of inflation accounting and depreciation.There are a number of accounting courses offered by such organizations as the IMA, AICPA, and the American Management Association, as well as by a number of accounting and appraisal firms. However, these courses are mostly directed toward the tax requirements of accounting for depreciation. Similarly, there are numerous off-the-shelf personal computer programs aimed at fixed asset accounting. Again, the primary purpose is to fulfill tax requirements and generate depreciation entries. Only a few provide for comprehensive property records. NEED TO CHANGE It has become obvious that management must change the manner in which they approach long-term tangible assets. The many production facilities built in the United States are wearing out.Government infrastructures of roads, sewers, sidewalks, and utilities are all suffering from the concept of â€Å"put it in place and forget about it. † The need is to get the most use out of these tangible assets. Much of the discussion having to do with inflation accounting for assets revolves around the problem that depreciation is not sufficient to cover the replacement costs of assets. The high cost of replacements, the dwindling supply of capital available, and high interest rates all require that new management control systems be put into place. With adequate control, management, and measurement of asset utilization, organizations can maximize the benefits from their investment in long-lived, tangible assets. 2 What Is an Asset?INTRODUCTION According to the Financial Accounting Standards Board Concepts Statement 6, assets are â€Å"probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. † The Institute of Management Accountants’ Accounting Glossary adds a second definition as â€Å"any owned physical object (tangible) or right (intangible) having economic value to its owners; an item or source of wealth with continuing benefits for future periods, expressed, for accounting purposes, in terms of its cost, or other value, such as current replacement cost. Future periods refers to the following year or years. † (SMA 2A) In its broadest sense, an asset is anything that will probably bring future economic benefit.In looking at assets, the focus will be on longlived tangible assets, sometimes referre d to as fixed assets or property, plant, and equipment. Assets are classified into two categories: tangible and intangible. Tangible assets are assets that one can touch, hold, or feel. Typically called fixed assets in accounting literature, tangible assets are the physical things that a business uses in the production of goods and services. They constitute the production facilities, buildings, equipment, and vehicles. These operational assets of a business include furniture, computers, and similar items not used up within a year. Intangible assets are primarily financing items: stocks, bonds, mortgages, etc.These assets are outside the scope of this book. 11 12 What Is an Asset? Assets that are converted into cash during the normal production cycle are current. Current physical assets are referred to as financial assets. These are physical assets such as raw materials, work-in-progress inventories, finished goods, and goods held for resale. Physical items can be financial assets, h eld in inventory, in one business, whereas in other businesses or applications they may be fixed assets. An example of such a financial asset would be real estate held in inventory by a real estate investment and sales organization or builder, which would be a fixed asset for everyone else.Equipment manufacturers have financial assets in finished goods or inventory held for sale, as well as plant and equipment that will be sold to other businesses. The inventory is a financial asset; when sold for use in a production line it becomes a fixed asset to the purchaser. HISTORICAL COST Historically, asset accounting has not stimulated the interest of accountants and managers in the United States. Assets have been analyzed in depth in terms of alternatives and appropriateness of the investment prior to purchase. However, once acquired and put in place, assets such as buildings, furniture, production equipment, and motor vehicles are given little attention.Where management attention has bee n focused, it has been in terms of return on investment and major tax benefits, such as investment tax credits and accelerated depreciation expense allowed on tax returns. In fact, these government tax incentives to buy new equipment in order to stimulate the economy have influenced management to replace still-useful assets that have been depreciated on the tax records. But there is a new perspective emerging on the part of managers and accountants with respect to fixed assets. The high initial cost to purchase, as well as the high carrying costs of debt, require a rethinking of the management of fixed assets.Many of the same factors that are bringing about just-in-time accounting philosophies and zerodefect quality control within the manufacturing process are also influencing managers’ perspectives on asset management. Zero defects and quality circles of employees are aimed to reduce the high cost of lessthan-perfect products and reflect today’s need for greater preci sion. To accomplish this higher quality production, it is necessary to have highquality production equipment. This requires preventative maintenance to keep closer tolerances and less downtime. Equipment that Matching Principle 13 fails during a production run leads to extremely high cost when the line stops.Preventative maintenance is being regularly scheduled on either an hours-of-use or calendar basis. This approach has begun to replace the attitude of put it in, use it, if it breaks repair it; if it breaks too many times, discard it and replace it. In addition to the requirements of modern processing, a new perspective on the need to manage assets—those things that you have saved and paid for which will bring future benefits to the business— has come about as a result of the significant debt held by many businesses. The public’s attention has been caught by the high government deficit, which must be financed by acquiring increasingly more debt.Large existing debt and the threat of higher interest rates on new debt due to the lower financial ratings are causing many managers to reconsider how to manage the assets they already have. Getting the maximum future value out of existing buildings and production equipment has become a more important aspect of management. In addition to process requirements and debt concerns, the cost of disposal is also growing at an alarming rate. Replacing individual parts instead of entire machines will reduce the production of refuse. In the past, accounting records of assets have been kept primarily for the purpose of establishing balance sheet amounts. The historical cost of purchasing or constructing the physical asset is included in the accounting property record.This amount, less depreciation, provides the basis for a return on investment calculation, the division of net assets (original cost less book depreciation) by net income. MATCHING PRINCIPLE The matching principle of accounting calls for the ma tching of costs with the accounting period those costs benefit. The purpose of the historical cost record is to ensure that the costs incurred in the purchase of assets in a past accounting period will be spread over the future accounting periods that benefit. The costs recorded for each asset acquired include the purchase price and anything necessary to make it ready for production. All expenditures involved in the acquisition of an asset and getting it ready for use are capitalized as part of original cost.Included are the invoice price for the asset, transportation charges, and installation costs, including any construction or changes to the building necessary to house it. Other incidental costs are sales or use tax, duties on imported items, 14 What Is an Asset? and testing and initial setup costs. The total costs of acquiring and putting the asset into actual production use should be capitalized. The use in production at a reasonable production rate (as opposed to limited use d uring testing) is also the point where capitalization stops on the new asset and depreciation begins. The cost of an asset must be spread on a rational, systematic basis over the periods of its useful life. This limited accounting application of historical cost records has led to many incorrect decisions regarding asset management.Recognizing this limitation, however, does not mean historical costs records are not necessary. Records must be established to provide information on location, maintenance history, and future usefulness of assets. Today’s high costs of debt and the need to safeguard physical assets requires going beyond the matching principle in creating property records. FIXED ASSETS Historically, even the term that accountants use for the long-lived tangible assets of business, that is, fixed assets, expressed the opinion that once purchased it is fixed, long term, and does not require management attention. In the last few years, the more common â€Å"property, p lant, and equipment† has been used to describe the operational assets of a business.Managers have found it necessary to provide additional information about property, plant, and equipment and created records separate from the accounting property record. Additional information includes current market value for insurance and security purposes, and utilization and maintenance records. A single accounting record of tangible assets with normal accounting controls is far superior to multiple records. This integrated record with accounting controls has been made much simpler with the advent and widespread use of small computers. For example, recording maintenance expenses for large equipment items is now easy. In a motor vehicle fleet, actual maintenance costs can be recorded in the property record of each vehicle.This allows review to ensure preventative maintenance is scheduled and also to establish criteria for disposing of older motor vehicles when they are no longer economical t o maintain. It then becomes possible to evaluate motor vehicles based on their entire maintenance record, rather than retiring vehicles based on age or mileage alone. What are assets fixed in? Are they fixed in time, space, or value? It is doubtful that they are fixed at all. IMA defines fixed assets as Fixed Assets 15 â€Å"noncurrent, nonmonetary tangible assets used in normal operations of a business. † See property, plant, and equipment in SMA 2A. Past practice has been to handle fixed assets as a â€Å"sunk cost,† a past cost which cannot now be reversed and, hence, should not enter into current decisions.Differential cost is â€Å"the cost that is expected to be different if one course of action is adopted as compared with the costs of an alternative course of action; used in decision making. Contrast with sunk costs. † (SMA 2A) If it is a fixed cost, then it is also a sunk cost. Is it really an asset if you cannot sell it? If you cannot move it, modify it , or maintain it? Those are alternative actions; therefore, historical cost of property, plant, and equipment are differential costs, not sunk costs. The term â€Å"fixed† cost implies a sunk cost. This management treatment of fixed costs as sunk costs may encourage hostile takeovers using junk bonds.If the current management and stockholders ignore the alternative uses of their long-term tangible assets, an outsider may see a much greater short-term value. In a case like this the current managers and owners are treating the fixed assets as a sunk cost instead of a differential cost. Few assets are fixed in any way. Most are mobile, and will disappear if not accounted for or deteriorate if not maintained. Many increase in value just because of inflation. If they do not increase in value, their replacement cost certainly increases. Typically, insurance policies require that coverage be at least 80 percent of replacement cost or recovery is limited to market value prior to the loss.Even the government is learning that their fixed asset theory for infrastructure assets needs amendment. Roads, bridges, sewer plants, and buildings seem to be in need of replacement at the same time, because they were put in place and ignored. No plan was prepared to manage them, to determine the best maintenance practice. Now they are not assets, but sources of liability. While government has a limited liability from suits due to personal injury resulting from improper maintenance of roads, etc. , businesses do not enjoy this limitation. If an employee or customer is injured by one of your bridges, roads, or other holdings, you are responsible for the costs.Is that driveway or parking lot really a fixed asset? Or one to be managed so it will not become a liability? It is difficult to imagine something that should be called a fixed asset. Assets are not fixed in any way—not in place, time, or future income 16 What Is an Asset? or expense. The exception might be a work o f art or historical treasure; however, even these items, if not protected, will deteriorate. In defining assets, therefore, we shall use the terms property, plant, and equipment and avoid future use of the term fixed assets, which is in reality an obsolete term for property, plant, and equipment. PROPERTY Property includes lands and improvements thereon.Land is not depreciated and its cost lasts in our theoretical business model forever. The cost of land includes its acquisition cost—costs of appraising, recording, and obtaining title. It also includes the initial costs of making changes to it so that it can be used for the purpose intended. This cost includes removing old buildings, leveling, and perhaps cleaning up any toxic residue. When land is acquired together with buildings, the cost will be apportioned between the land and the buildings in proportion to their appraised value. If the acquisition plan contemplates the removal of the buildings, then the total cost includ ing removal is accounted for as cost of land. Any salvage value of the emoved buildings, when disposed of, is deducted from the cost of the land. Toxic residue cleanup provides a particular problem in accounting for land. If the extent of the toxic cleanup costs are known prior to purchase, it is assumed that the purchase price has been reduced accordingly. Then it is correct to include those cleanup costs in the cost of the land. However, where land is owned and toxic residues from past practice are discovered, the cleanup of these items provides no future value. Cleaning up these toxic wastes is similar to washing a rental car or limousine. You may not be able to generate any rental revenue without a clean and polished automobile, but it does not provide future value beyond that.Cleaning up toxic wastes makes the property usable; however, it does not provide future benefit: It can only restore the usefulness of the property to its level of use prior to recognizing the toxic proble m. Improvements that theoretically have an indefinite life are also added to the cost of land. Grading, drainage, sewers, and utilities are examples. These items are put in once and unless damaged by force or disrupted by plans for new uses of the land, they do not require maintenance. Therefore, their life is assumed to be that of land forever in the accepted business model. The proper treatment of property costs is an area that must be spelled out in the accounting manual for the firm so that all similar Plant 17 transactions are handled in the same way.The manual should translate these principles into specific accounting practices for the firm. For example, electric and gas utility installation to the meter or distribution point are usually a part of the land cost. Beyond this, location utilities and part of the individual building investment are to be included in the plant category. The acquisition of property may bring about other expenditures which should be added to its histo rical cost. Some of these are as follows: Contract price Real estate broker commissions Legal fees involved in the transaction Cost of title guaranty insurance policies Cost of real estate surveys Cost of an option that has been exercised Special government assessments Fees harged by government for changes in land use or zoning Cost of removing buildings Cost of cancellation of unexpired lease Cost to move tenant if payable by purchaser Payment of past due taxes if payable by purchaser Cost of easements or rights of way Assessments for the construction of public improvements Deduction of salvage value from buildings removed and sold Toxic waste cleanup Grading land and providing drainage Placing utilities PLANT The term plant has its origin in manufacturing, where the plant is literally used to house the production equipment. This includes buildings and other structures or improvements that have a limited life. Paved parking lots and sprinkler systems, as well as recreational and la ndscaping improvements, are included.Also included in plant are fences, roads, and grading and excavation costs necessary to construction of the buildings. The distinction between property (land) and plant is the 18 What Is an Asset? duration of usefulness. Improvements to the property that will have a measurable or estimated life should be depreciated over that life. Therefore, they are charged to the plant account. If they are of indefinite life, they are treated as property. All expenditures directly related to the purchase or construction of buildings or other physical plant are included in plant cost. Land includes the cost of preparation of a construction site. All costs for a specific construction are included in the cost of the product.Some of the other expenditures that should be added to the capitalized cost of the asset acquired are as follows: Contract price or cost of construction Cost of grading and excavation for the specific building Expenses incurred in removing tre es and other foliage for the specific building Costs of remodeling or altering a purchased building to make it ready for use Costs for architect’s fees, plans, and other planning events Cost of government fees and building permits Payment of prior year taxes accrued on the building if payable by purchaser Other costs such as security or temporary fencing, temporary buildings used during construction, or other costs directly attributable to the construction or purchase of the specific building Capitalized interest EQUIPMENT Equipment includes the machinery, computers, office equipment, and all other long-lived items necessary for the operation of the business.These items require more managerial control because of their portability and general usefulness for other than the purpose intended when acquired. They range in price from a minimum capitalization level to many millions of dollars for complex production machinery. Because of the wide variety of requirements for different items of equipment, we shall discuss them in several categories, including: Tools Building systems (heating, cooling, elevators) Equipment Irrigation equipment Furniture and office equipment Computers Printing presses Automobiles Tractors Trucks Trailers Aircraft Livestock Furniture and Office Equipment 19 Furniture and office fixtures are long-lived assets needed to run a business.In the service industries, except for buildings, these will be the major tangible assets of the business. The establishment of a reasonable minimum capitalization level has to be weighed against the other factors of managing this class of equipment. Office desks and chairs that are personally used by one manager will receive the attention necessary to safeguard and ensure proper maintenance as required. Many companies establish a $5,000 minimum capitalization level for these items. However, telephone equipment purchased may become obsolete or require significant maintenance after a short period of time. A lso, office copiers, fax machines, and computers have a need for greater management and future planning.It is important that these items not all have a requirement for replacement in the same future year. Inclusion in the property record, which subjects such items to the controls provided in that system, may in fact reduce the dollar value at which it is desirable to maintain capitalization. These items should be included in a detailed policy and outlined in the handbook on asset capitalization or its chapter in the accounting policy manual of the business. When the decision is made to capitalize a particular item of equipment, all costs involved in putting it into a condition ready for use should be included in the asset value. Some of the costs that may be incurred are: Contract price Commissions paid 20 What Is an Asset?Legal fees and other contract costs Cost of title guaranty insurance policies Cost of transferring title Freight, handling, and storage costs Sales or use tax and other taxes or fees assessed Costs of preparation of the space for installation (foundations, special walls, removal of windows) Use of cranes or other means of installation Installation charges Cost of testing and preparation for use Costs of reconditioning used equipment purchased DEFINING ASSETS Assets are not always easily defined. For example, a Berkeley, California, producer of â€Å"baby† vegetables for New York City upscale restaurants could not function without the regular and dependable inexpensive air shuttle of the crop each morning.The New York restaurants pay a premium for the product, but it must be picked that morning and delivered to New York City by noon for serving in restaurants that evening. Is the transportation link from San Francisco airport to New York an asset of this Berkeley producer? From an accounting sense, it is not; however, it continues to deliver future benefits to the company. Without that transportation link being available, there would b e no business; but it would be impossible to establish any value to that transportation link without a sale. If the business were to be sold, it is likely to command as an operating business more than the value of its individual components. This additional value will be included on the purchaser’s balance sheet as goodwill.Much of that goodwill can be a result of an existing working transportation system from the producer’s garden to the upscale restaurants. Goodwill is an intangible asset. Accounting recognizes it only because there has been an actual payment for it. It must be recognized somehow as its usefulness is used up over future periods. The asset exists whether it is recognized in the book of accounts as goodwill or not. However, this emphasizes the accounting concept of recognizing asset value in accounting systems for the purpose of measuring the decrease in its future usefulness in relationship to its original cost. In this Defining Assets 21 case, it is n ot a problem in defining the asset, but in establishing the asset’s value. There are other difficulties in defining an asset.In industries where investment in property, plant, and equipment is low in comparison to return on products, there has been no need to closely manage the investment in assets. Examples are restaurants where investment is limited to leasehold improvements. The concern of restaurant managers is keeping their lease and labor costs down. The investment in fixed assets required to run a substantial restaurant is small in comparison to its gross sales. The investment in leasehold improvements for a restaurant many times are sunk costs. They have value only to the end of the lease. It may also be desirable for marketing purposes to substantially alter them prior to the end of their useful life.Here the value is easily established based on what they cost to install. However, they might not be providing future benefits and therefore require replacement before th eir costs have been recognized. A different management problem exists when investment in capital items is large relative to the cost of production or when there are few other opportunities to use the assets for different purposes. Examples are oil refineries and pharmaceutical laboratories. Once the refinery or drug production facilities are constructed, they are not readily usable for any other purpose. There is also little opportunity to make decisions relative to alternative use of these assets.A grocery store location could be altered to become a restaurant or a hardware store, but an oil refinery would cost more to dismantle than it originally cost to construct. These cases raise the question of the value of alternative uses. The accounting principle of recognizing decline in service value through depreciation takes this into account in the concept of salvage value. Salvage value is the value which the asset has at the end of its useful life. The oil refinery would have a nega

Apple and Increasing Market Share

Apple Inc. is a successful developer of both computers and consumer electronics. The company’s most popular products include Macintosh computers, iPod mp3 players, iPhone smartphones and most recently the iPad, which is a hybrid of a tablet computer, and an eReader. Apple’s Macintosh computers, iPods, iPhones, and iPads all share characteristics that make them part of the general information technology industry. However, since they are very different products each belongs to a more specific industry. The Macintosh computers are included in the personal computer industry, iPods in the personal media player category and, depending on the model, the mobile internet device (MID) market and iPhones to the smartphone and MID industry. The iPad has not been released to the general public yet, but considering its various features it could belong to many markets. However, it will most likely be competing with the internet tablets, netbooks, and eReaders. Considering their competitors, one could surmise that the iPad will belong to both PC and eReader markets. By incorporating market assessment and predictions for each of Apple’s products, as well as consumer research into the promotional strategy, Apple will be able to improve its product sales 10% over 2011. Macintosh computers are Apple’s oldest product category. Their price point is significantly higher than Windows based PCs. This knowledge, combined with Apple’s popular Mac vs. PC television ads, can tell us a little bit about Apple’s target consumer. In the Mac vs. PC ads, Mac is represented by a young, trendy individual while PC is represented by a middle-aged nerd. This depiction of Mac, coupled with its higher prices (the cheapest Mac sells for $999), tells us that Mac is trying to attract younger individuals, within the 18-24, 25-34 and 35-44 age bracket with a higher-than-average income of the $50,000-$79,000 bracket and above. Due to the higher price point, Apple is targeting college graduates, because they tend to make more money. In the famous Mac vs. PC ads, Mac is portrayed by a male actor indicating that the company’s target market may be slightly more aimed at males than females (Get a Mac – Watch the TV Ads). Maintaining the current target market appears to be a wise strategy since reducing prices now in order to attract less affluent consumers could risk Apple’s image as a status symbol and its brand equity, especially when one considers a recent study of Apple consumer psychographics in which Mac users were considered to be less modest and more assured of their self superiority than the general population. I would recommend, however, that the Macintosh not entirely dismiss the female audience or older consumers. Older consumers tend to have more disposable income than the younger consumer. Therefore, with the brand’s higher price point, it would make sense to include the 45+ consumers in promotional strategy as well (Fried). As part of the personal computer industry, Macs are subject to several trends occurring within the industry. First, industrial design is becoming much more important in the minds of consumers than technological features. Consumers want computers that are more portable and can handle work and school requirements. Lower-priced mini-notebooks are becoming increasingly popular with consumers. It should be noted that the according to Gartner, ‘mini-notebooks were the only growing PC segment in 2009. ’ In another recent study by Gartner, it was predicted that by 2014 in a mature market, design would be the primary reason 20% of consumers will decide to purchase a new computer. However, computer firms should consider not only the outward design of the machine. Consumers also want user-friendly systems that work well with their other electronic devices. The second factor impacting the personal computer market is increased concentration on targeting even younger consumers. The main features expected to entice these youths are touchscreens and cheap mini-notebooks. Gartner has predicted that ‘by 2015, more than 50% of PCs sold to users under the age of 15 will have touchscreens. ’ Similarly the research company predicted that 20% of mini-notebooks would be sold to consumers 12 years of age and younger by 2012. It is also predicted that mini-notebook sales to children will be the quickest growing segment among PCs (Kitagawa). Considering this information there are many routes Apple can take to increase their market share in the personal computer industry. First, for consumers who want cheaper options, portability, and great design, Apple should use this as an opportunity to position the iPad as an alternative to the mini-notebook. The $499 device is capable of running Apple’s version Microsoft Office, iWorks, and in the future the iPad application store may include Microsoft Office apps. The device basically allows consumers to do more or less the same things as a mini-notebook but has the sleeker design and more user friendly interface that consumers are demanding. An alternative to this would be for Apple to design a mini-notebook version of the Macintosh since at present, the closest thing Apple has to compete with this product is the Apple Air, which while it does weigh less than most computers on the market, the product is still very wide in comparison to the standard mini-notebook (IPad – See the Web, Email, and Photos like Never Before). If Mac wants to continue to compete against its Windows counterparts, Dell, Toshiba, HP and Asus, the company needs to be prepared to compete in the mini-notebook arena. Apple could do this by positioning the iPad as a mini-notebook in consumers’ minds or by creating a new product, a Macintosh mini-notebook (Kitagawa). A second route Apple could take to improve its sales involves the trend of multi-touch surface computers becoming increasingly important in targeting younger personal computer users. Gartner noted that due to this trend, new markets will be developed for lower cost, with touchscreen computers targeted toward younger users. Apple could define this market with its iPad, or a version of the iPad. Especially since younger users have an easier time using touch screens that are horizontal (like the iPad) than vertical screens (like a netbook). It is important that Apple work on defining this market now, because the new Windows 7 operating system is fully equipped to allow PCs, Mac’s biggest competitors, to enter the portable touch-screen PC market (Kitagawa). To solidify the best strategy in increasing sales in the personal computer industry, Apple should conduct research surveys to determine if an Apple mini-notebook is something consumers would be interested in, and if given the choice at the same price (currently $499), would they prefer an Apple netbook to an Apple iPad? This would enable Apple to determine whether or not a new product needs to be created to compete in the mini-notebook market. In addition, since design is becoming increasingly important in the computer industry, Apple should seek consumer feedback concerning ways Macs could improve their current designs. To effectively promote the iPad as a netbook, Apple can take several avenues. First, because the iPad could be easily adapted by children, Apple could greatly bolster its iPad sales by developing educational software for the device and targeting elementary schools with sales promotions and direct marketing emphasizing the product’s educational benefits. To employ this strategy, Apple should send direct mail to public schools and include discounts on iPads based on the schools economic need. Marketing the iPad as computer for children via direct marketing and not the mass media will also help avoid associating the iPad solely as a children’s computer. Apple’s iPad has already done a great job of utilizing public relations to create a buzz about the product. In fact, the product won’t be released until April, 2010 but the United States government is already worried that its popularity will slow down the internet as new iPad users access the internet (Bellaria). To market the product as a netbook, Apple should consider emphasizing the attachable keyboard that would allow the product to be better positioned as mini-notebook (IPad). The best way to do this would be to put ads on the big four broadcast networks, ABC, CBS, FOX and NBC. Apple targets a wide range of consumers and advertising on these networks prior to the product’s release would reach a wide range of the target market. As far as marketing Macintosh computers, Apple should keep the current Mac versus PC ads, but incorporate female versions of the ads to entice more females to switch from PC to Mac. Finally, because the older consumer is a great potential market, Apple should include advertising in news magazines, a medium popular with older adults (Newsmagazine Demographics: A Graying Market). Since many older consumers are apprehensive about technology, the ads should emphasize Macintosh computers’ ease of use and small learning curve. Currently the Apple iPod personal media player offers lower price points and has garnered a market share of around 70%, exceeding all mp3 players for several years. The iPod is to mp3 players what the Sony Walkman was to tape players (Elmer-DeWitt). For this reason, Apple’s target demographic is definitely broader for iPod than its Macintosh brand, partly because of the mix of low and high prices of iPods ranging from the $59 iPod Shuffle to the high-end $399 iPod Touch. Apple still focuses its attention on younger consumers for the simple reason that this age bracket is more comfortable with technology. The iPod targets age brackets from the 12-17 range to the 35-44 age range. Males are typically more tech savvy so they make up a slightly higher percentage of the gender demographic. Since the iPod is a cheaper product, household incomes, with the exception of the $15,000 and below bracket are potential consumers. High school students are another great market for the iPod so those with some high school education and beyond are also targeted by Apple. As for psychographics, the consumer base for the iPod is so broad it would be hard to narrow down consumer similarities to anything more than a love of music (Play Music and More on IPod). The portable mp3 industry is reaching its penetration point and sales are starting to stabilize (Elmer-Dewitt). Portable media players like the mp3 are also following a more connected trend. This means more and more devices, such as the iPod touch are allowing users to access the internet through Wi-Fi networks. Because the iPod is doing so well and has such a loyal brand following, all Apple needs to do is continue to invest just enough in R&D to stay with the competition (Baker). The iPod has reached the maturity age as sales have stabilized in this area. It is time for Apple to start thinking about cutting costs in this department and milking the brand by reducing costs to increase profit margins (Aaker). The iPod can employ a flighting schedule, going on flight hiatus until before and during the peak holiday period to cut costs. iPod only needs to maintain its image as the mp3 player to have. This can be done by continuing some television advertising to general audiences on the 4 major broadcasting networks as well as channels popular with youth, like MTV and the Disney Channel, in which new music is promoted along with the Apple device, thus linking the iPod with youth. Also, since online advertising is extremely effective with younger consumers, commercial banners on youth oriented sites such as MTV. com or Hulu. com will continue to keep the iPod positioned as the definitive music player for the 12-17 and 18-24 year old consumers. Sales promotions allowing consumers to get a discount on a new iPod if they turn in their old model could also be effective for the product. This would also maintain brand loyalty and create a unique selling proposition among mp3 players. The iPhone is very similar to the iPod, especially the iPod touch, in that it can play music and video, (and like the iPod touch, access the internet); however, the device also acts as a cell phone. Over the course of the first quarter for 2010, Apple sold 8. 7 million iPhones, a 100 percent growth in sales from 2009’s first quarter. (Reports First Quarter Results) However, in the smartphone industry, Blackberry still leads the market and Google’s Android has gained a 4% increase in market share. Currently, these smartphones are Apple’s biggest threat. The iPhone has only gained a . 04% market share (Turner). The problem iPhone is likely facing here is the demographics the product is targeting and attracting. The average buyer of the iPhone is almost evenly split among the 15-24, 25-34 and 35-49 age brackets (31, 32 and 31 percent, respectively). 74 percent of iPhone consumers are males and 58% have graduated college. Finally, the average household income of the iPhone is $75,600, so the target consumer likely falls into either the $50,000 to $79,000 or $80,000 to $94,000 household income range. The psychographics of the Apple iPod are the same as those of Mac users because both products, iPhones and Macs, are considered status symbols (White). In the case of the iPhone, Apple needs to work on targeting older users. Only 6% of iPhone users are above the age of 50; however, these consumers have more money to spend. Also, because of the intuitive touch interface, the ease of use of the iPhone could be a strong selling proposition for older consumers without much technological experience. Apple should continue researching ways to improve the ease of use of its product since as the smartphone industry progresses, large screens and touch interfaces are becoming commonplace. Improved usability, longer battery life, and network optimization is where smartphone will be competing in the future (Baker). To improve the user experience of the iPhone, Apple should conduct ethnographic research on current iPhone users. These studies could uncover user frustrations concerning the iPhone experience and focus on the features consumers currently like about the product. This will help Apple improve the user experience even more and enable the company to more effectively market the device to a wider range of less technologically inclined users. Apple could also include an ‘easy interface’ application specifically designed for the older consumer (Aaker). Like the promotional strategy discussed for Macintosh computers, Apple should take out ads in news magazines like Time and Newsweek ,which are targeted to an older demographic, in order to promote the iPhone’s ease of use and possibly the new ‘easy interface’ application to more senior consumers. In regards to the newest Apple iPad, this product has a lot of potential to increase Apple’s sales over the next year. It has already been discussed how the product could increase sales by positioning itself as a competitor in the netbook and touch PC market. In addition, the device can also be positioned as competitor in the eReader market. Gartner recently suggested that the eReader industry would great potential if some current issues were resolved. The first issue is that the eReader industry has not agreed on a proprietary file format for eBooks. This means that currently, there is not a standard book file format that can be transferred from one eReader to another (Baker). However, Apple has enjoyed much success with its iTunes and Application stores for its iPhone and iPod devices. Apple can leverage it online media store competencies to really make the iBookstore a success. If the iBookstore can be as successful as iTunes, not only will this increase eBook sales for Apple, it will also be good for the industry as a whole as it may provide eBook readers with a common file format (Aacker). The Apple company needs to be cautious and strategic however since Barnes and Noble, the owner of one of Apple’s eReader competitors, The Nook, has announced plans to create its own free online bookstore application for the iPad (Hamblen). Another element that has been afflicting the eReader industry is the price relative to the benefit. The Amazon Kindle’s cheapest version sells for $259 (Kindle Wireless Reading Device) and Barnes and Noble’s Nook sells for the same price (Nook, EBook Reader, EReader). The Sony Reader has a pocket version of its reader, set at a price of $199 (Sony – Reader Pocket Edition). These prices are currently considered to be too high for most consumers considering the only function of the eReader is to allow consumers to read. The cheapest version of the iPad is to sell at $499. Even though this is almost twice as high as the Kindle, Nook, and Sony Reader, the iPad offers many more benefits, such as video and audio playback, and access to the internet (IPad). Consumers are therefore more likely to forgive the relatively higher price of the iPad since it offers so many more benefits (Baker). The iPad should continue its mass media commercials on the major networks and work to emphasize its iBookstore in commercials in order to edge out the Barnes and Noble reader application being designed to compete with the iBookstore. Historically, new Apple products are much sought after and are considered status symbols. Because of this, the iPad will be targeted to higher household incomes, primarily the $50,000 to $79,000 and $80,000 to $94,000 brackets. Like other Apple products, the target market will likely lean more toward the male audience and include primarily college raduates. The age range will also likely be 18-24, 25-34, and 35-44 as older consumers typically avoid newer technologies. To generalize all Apple products and their promotional strategies, CEO Steve Jobs does an excellent job of using PR to introduce Apple products and create a buzz for them. However, after the initial buzz wears off, so does the PR. One way Apple could keep its name in the news is by creating a charitable organization, such as an after school technology learning program for inner city high school students, incorporating Mac products into that organization. Overall, Apple is in a very good position to increase its sales over 2011. Consumers are embracing technology, especially mobile media technology. More and more people are watching videos online and embracing smartphone technology (Bhatia). Apple should continue to emphasize the user-friendliness and great design of its products to the young, old, and everyone in between. If Apple does this, in addition to the many promotional strategies outlined above, a 10% increase in sales over 2011 will be very probable and Apple will have a lot of potential for future growth as well.