Ashen Dissanayake Part B

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University Canada West *

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622

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Aerospace Engineering

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Apr 3, 2024

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docx

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Week 04 - Case Study - HotelWhistler Part B Ashen Aloka Samarasinghe Dissanayake (2317179) University Canada West ACCT 621 Prof. Karen Mae February 14 th , 2024
To: Managing Director ‘HotelWhistler’ From: Financial Consultant Subject: Assessing and Optimizing Financial Performance Issue 01: Potential cash flow conflicts in choosing accelerated depreciation method . Analysis of Cost value with Accelerated and Straight-line method on providing recommendation on the best method to apply. The company has determined the fixed cost of the HVAC system based on some operating expenses, Therefore, rectification of the calculation will be evaluated to determine the accuracy of the estimate. HVAC System $120,000 Installation Fee $20,000 Staff Training $5000 Delivery Cost $2000 Extended Warrarnty $4000 Government Compliance fee $500 Total Cost of the HVAC System $161,500 I’m writing to provide a brief analysis and recommendation regarding selection of the depreciation method for the HVAC system.
Here is the breakdown based on two methods looking at the first 3 years. Accelerated Method: Depreciated Amount $ NBV $ 1st Year 21,641 139,859 2nd Year 18,741 99,476 3rd Year 13,330 86,146 Straight-line method: Depreciated Amount $ NBV $ 1st Year 22,725 138,775 2nd Year 22,725 116,050 3rd Year 22,725 99,325 The accelerated depreciation method, while potentially advantageous in certain situations, may not be the most appropriate choice for HotelWhistler at the moment addressing the current financial scenario. As the company is already experiencing loss in revenue comparable to increase in operating expenses and prepaid expenses, the accelerated method will be resulting in higher expenses particularly in the first few years. This may further exacerbate cash flow challenges and financial instability particularly in this reduced revenue period.
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