Hi. Should I track depreciation of fixed assets for company valuation purposes even if I expensed them for tax purposes in the 1st year? E.g., current value of tractor.

Anonymous · ‎April 21, 2019

Malcolm Ziman · ‎April 21, 2019

@Anonymous

If this is a corporation or a partnership, there is a schedule on the tax return to reconcile book to tax profit. That is where depreciation claimed for tax purposes but not for book purposes, would be a reconciling item. The government provides investment incentives so that fixed assets can be fully expensed before their useful life has ended, which leads to a misstatement of the reasonable value of the assets of the business, which seems to be what happened here. Even if this is a sole proprietorship, the same principle applies. So it makes sense to depreciate the asset based on the estimated useful life, not on what the IRS allows. There are generally accepted principles for estimated useful life. I believe for vehicles it is 5 years, so depreciation would be 1/5th every year, using the straight line method.

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Rustler · ‎April 21, 2019

depreciation entries are double sided just like all business accounting entries. Depreciation should post to depreciation expense AND accumulated depreciation for that asset. You use a journal entry for this posting in QB

debit depreciation expense

credit accumulated depreciation-asset

I suggest the CoA look like this

Fixed Assets

>> Tractor

>> >> cost
>> >> accumulated depreciation tractor

EDIT

Yes, even if you use the sections 179 option to expense the full value as 1st year depreciation, that asset and the total depreciation stays on the books. It still has scrap value if nothing else. And when you dispose of it, sell it, trade it in, that depreciation has to be part of the transaction too - even if you did not (for some strange reason) claim depreciation expense, it has to be calculated and be part of the transaction

Malcolm Ziman · ‎April 21, 2019

@Anonymous

If this is a corporation or a partnership, there is a schedule on the tax return to reconcile book to tax profit. That is where depreciation claimed for tax purposes but not for book purposes, would be a reconciling item. The government provides investment incentives so that fixed assets can be fully expensed before their useful life has ended, which leads to a misstatement of the reasonable value of the assets of the business, which seems to be what happened here. Even if this is a sole proprietorship, the same principle applies. So it makes sense to depreciate the asset based on the estimated useful life, not on what the IRS allows. There are generally accepted principles for estimated useful life. I believe for vehicles it is 5 years, so depreciation would be 1/5th every year, using the straight line method.

Imperial1 · ‎December 23, 2020

What if you sell the asset before is has been full depreciated?

How do you get the balance of the accum. dep. off the books?

Asset - 750,000. 00

accum dep: -186,0000

Bal: 564,000.00

shermizzle · ‎April 07, 2022

If you sell before its been fully depreciated:

Asset - 750,000. 00

accum dep: -186,0000

Bal: 564,000.00

Sale: 575,000.00

Cash 575,000

Asset (750,000)

Deprec 186,000

Gain on Sale (11,000)

If you sold it for less than book value, the last line would be a debit to "Loss on Sale".

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Hi. Should I track depreciation of fixed assets for company valuation purposes even if I expensed them for tax purposes in the 1st year? E.g., current value of tractor.