Kansas City Zephyrs Baseball Club, Inc
Analysis of the Kansas City Zephyrs Baseball Club for 1983 and 1984.
In reviewing the Kansas City Zephyrs Baseball Club, and hearing arguments from both the owners and player there have been some interesting findings. We see that both parties are motivated towards getting more actual cash flow for their respective sides. Using different accounting techniques resulted in two very different financial statements for the Kansas City Zephyrs Baseball Club. Although, both teams seem to agree on most of the financial statements there seem to be three specific areas that are causing dispute. The three causes of disputes are roster depreciation, overstated player salary expense, and related party transactions.
According to the owners the 50% of the 12 million dollar purchase price is being depreciated as roster depreciation. The reasoning behind the 50% rate of depreciation is that it is the maximum rate allowed by the IRS. This clearly shows that the owners are trying to cover as much profit without actual cash outflow through the depreciation expense.
According to the players there is an appreciation rather than depreciation as the players actually improve their skills as they increase in experience. Considering the facts it does not add value to depreciate teams that generally appreciate and therefore should not be included in the financials.
Overstated Player Salary Expense
There are three points of disagreement on player salary expenses; sign up bonuses, deferred compensation, and non-roster player salaries should be expensed in the year that it is paid.
Sign-up Bonuses: The players feel that the sign-up bonuses should be amortized over the contract of the players. This seems inconsistent with their prior argument to have the financials match cash flow as much as possible with an argument against depreciation. It doesn’t make sense to amortize part of a salary as an asset. Since the...
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