To: groanup
I don't understand. How is deprecitation a repeat purchase of land. It is merely tax avoidance isn't it?
I'm not an accountant, so I don't understand it either. All I know is that if we purchase a car for $50,000, we pay that at the time of purchase. Then, next year we have to pay a depreciation amount of $10,000 (using a 5 year depreciation). And again for the next 4 years. These are dollars that come out of our budget to purchase more vehicles. As for the land, we have to pay depreciation on the upgrades that we do (i.e. pavement, buildings, etc.)
The reason we do this is because the IRS requires us to. Yes, it is funny money, but tell my manager that I need to spend $10,000 this year on something and he will not be able to because I'm having to pay depreciation.
Quick link that I found:
http://www.businesstown.com/accounting/basic-depreciation.asp
The concept of depreciation is really pretty simple. For example, lets say you purchase a truck for your business. The truck loses value the minute you drive it out of the dealership. The truck is considered an operational asset in running your business. Each year that you own the truck, it loses some value, until the truck finally stops running and has no value to the business. Measuring the loss in value of an asset is known as depreciation.
Depreciation is considered an expense and is listed in an income statement under expenses. In addition to vehicles that may be used in your business, you can depreciate office furniture, office equipment, any buildings you own, and machinery you use to manufacture products.
135 posted on
08/23/2005 11:38:22 AM PDT by
Gvl_M3
To: Gvl_M3
I'm not an accountant, so I don't understand it either. All I know is that if we purchase a car for $50,000, we pay that at the time of purchase. Then, next year we have to pay a depreciation amount of $10,000 (using a 5 year depreciation). No one pays for depreciation. Depreciation is simply an accounting tool to track value and to take deductions. The car you paid $50,000 is worth $50,000 when you bought it. Using a 5-year straight line appreciation, after 1-year it is worth $40,000 on your books, and the IRS allows you to deduct that $10,000 as an expense. Your company is not paying $10,000 to anyone, just making a book entry taking off $10,000 from the value of the car.
To: Gvl_M3
"Measuring the loss in value of an asset is known as depreciation."
Incorrect. Depreciation is a means of cost allocation, not valuation. When you depreciate a building over its "useful life" (according to either tax or GAAP guidelines), it may well be worth more at the end of that "useful life" than it was when you first bought it and started depreciating it.
144 posted on
08/23/2005 12:21:01 PM PDT by
phil_will1
(My posts are in no way limited or restricted by previously expressed SQL opinions)
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