Accounting & Bookkeeping & Small Business Forum

[Guest]

What is the most accurate way to determine which depreciation method should be used for a particular type of asset? I have seen tables that break asset types into certain categories for tax purposes, but even then it's difficult to choose to which category certain items belong. Other books say that it is at the descretion of the accountant. If that's the case, then I would choose the straight-line method because it's the simplest. However, I don't know if that demonstrates much prudence. Also, my understanding is that accounting depreciation laws differ from those of the tax laws. I believe it was suggested in the UAC course that one way in which to alleviate the need for recalculating depreciation expense for tax purposes is to use MACRS for accounting purposes. That being said, what is the most acceptable way? Thanks.

[Guest]

Vinita: The final say of which method to use is of course the business owner. THIS SAID I DO EVERYTHING IN MY POWER SO THAT THIS DOES NOT COME TO BE. In other words I try to make that decision for him. WHY? Because unless the business owner knows the true purpose of accounting (matching principle) (GAAP) etc. he will choose the tax method. The problem is you have expensed say a $30,000 piece of equipment and show say a $25,000 loss. Yet he probably has just had his best month ever. He is going to ask howcome I made all these sales but I havebut had a profit? "YOU DO NOT KNOW WHAT YOU ARE DOING. I AM GEETING SOMEONE ELSE." True accounting serves the business owner, the banks, and investors. Tax accounting serves only the taxman. They go by two different sets of rules.

I will now get off of my bandwagon and say use straight line with or without salvage, using the MACRS YEARS, and put on the books in the month actually placed in service. Anything placed before the 15th would be ignored that month and anything placed on 16th-31st would be included.