Equipment and Leasehold Improvement of Koss Corporation

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Table of Contents

Introduction
Equipment and leasehold improvement
Conclusion

Introduction

Koss Corporation, founded in 1953, is a public company that is based in the United States. It operates in the audio/video industry. It is a segment of home entertainment industry. Specifically, the company produces and sells a wide range and high quality stereo headphones. The company sells its products both in the US market and other foreign markets such as Europe, Middle East, Latin America, Canada, and Mexico among others. The largest amount of net sales emanates from the US market. Some of the key competitors of the company are Harman International Industries Incorporated and Plantronics, Inc. The paper seeks to carry an analysis of the equipment and leasehold improvement of Koss Corporation.

Equipment and leasehold improvement

Based on the Generally Accepted Accounting Principles (GAAP), upon purchase of equipment and expenses relating to leasehold improvement, the amount is capitalized by creating an asset account within the books of account of the business. At the end of the year, the balance in the asset ledger account is transferred to the statement of financial position as an asset. Further, a proportionate amount of depreciation is charged to the income statement as an expense. This is done until the amount of the asset is fully depreciated. Upon sale of the equipment, adjustments are made in the books of account and the amount of loss or gain on the sale of fixed asset. The equipments and leasehold improvements of the company are recorded in the balance sheet at cost less the accumulated depreciation. The amount of depreciation and amortization is calculated using the straight line method of depreciation. Further, the company only capitalizes the amount spent on major expenses on renovation on property and equipment. However, minor expenses are expensed directly to the profit and loss account. Therefore, it can be observed that method of accounting used by the company is consistent with the GAAP. The table presented below shows the balances of equipment and leasehold improvements as at the end of 2011 and 2012.

Table 1.0 – Balance of various categories of equipment and leasehold equipment

	Category of the asset	Estimated useful life	2011	2012
1	Machinery and equipment	5 – 10 years	527,450	527,450
2	Furniture and office equipment	5 – 10 years	228,935	298,809
3	Tooling	5 years	2,958,268	3,180,586
4	Display booths	5 – 7 years	253,680	287,180
5	Computer equipment	3 – 5 years	742,797	1,370,185
6	Leasehold improvements	7 – 10 years	1,804,755	2,058,805
7	Assets in progress	N/A	1,546,019	395,035
			8,061,904	8,118,050
	Less: accumulated depreciation and amortization		4,977914	5,383,024
	Equipment and leasehold improvements, net		3,083,990	2,735,026

In the table presented above, it can be observed that the value of the net assets for the company declined from $3,083,990 in 2011 to $2,735,026 in 2012.

Conclusion

The paper carried out an analysis of the equipment and leasehold improvement of Koss Corporation. Based on the discussion above, it can be observed that the company maintains a relatively low amount of the asset. Further, it can be observed that the ratio of net income to net equipment and leasehold improvement is quite high. In 2011, the ratio was high at 100.75% while in 2012 the rate increased further to 141.81%. Higher ratios are an indication that the equipment and leaseholds of the company are quite productive and generate a high amount of net income per unit. Further, it indicates that the management of the company focuses on acquiring equipment and household that generates a substantial amount of sales. Further, the management cannot invest heavily in these assets because the industry in which the company operates is quite dynamic and highly depend on the constantly changing technology. Therefore, it is advisable to maintain an optimal amount of assets. Finally, the recording of equipment and leasehold improvement in the books of account of the company is consistent with the GAAP.

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Equipment and Leasehold Improvement of Koss Corporation

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