Aquisitions and Payments - Essay Example

ing the entire useful life of assets, the management would be paying fewer taxes under double- declining method of depreciation during initial years of useful life. This is because double- declining method uses double the rate of straight line method. Depreciation would be higher in initial years as compared to straight line method. Carrying value of in later years would be lower as compared to straight line method and hence lower depreciation would be charge to income statement resulting into higher income and thus higher taxes during later years of useful life.

The position is exactly reversed when management decide to use straight line method of depreciation. However, when using double- declining method and paying fewer taxes in initial years of useful life of asset, the company will have to make provisions for deferred taxation. The cash flow statements of Pier 1 Imports show an entry under the head changes in cash from ‘Sales of receivables in exchange of beneficial interest in securitized receivables’. . That means that Pier 1 had to resort to Securitization laws to take hold of assets covered for receivables that became bad and unrecoverable.

The company is generating cash by way of making sales of those assets or beneficial interests held in place of bad recoverable under the provisions of the law. This indicates that there were recoveries that turned bad and Pier 1 had to resort to take possession of some beneficial interests to make good some of the bad debts. “Securitization is the process of pooling and repackaging of homogeneous illiquid financial assets into marketable securities that can be sold to investors.” (Lakshmi Mohandass).

This shows that securitization is undertaken only of those financial assets which become illiquid or bad to recover. The amount shown under the above stated head ‘Sales of receivables in exchange of beneficial interest in securitized receivables’ is quite significant. In 2007 changes in cash flow from such