Category Archives: Asset Class

Definition of an Asset in Debate

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A recent article in CFO Magazine asks the question “When is an asset not an asset?” This is a real concern for CFOs and other executives who account for lease expenses incurred by their companies.

Finance executives are not happy with a new lease accounting proposal that requires lease expenses to be recorded on corporate balance sheets. The proposal from FASB (Financial Accounting Standards Board) and IASB (International Accounting Standards Board) wants corporations to distinguish between equipment and property leases. They are attempting to treat leases more like purchases:

They note that the boards’ lessee accounting model disregards the nature of the lease contract, focusing too much on equating the lease to the underlying asset. The asset is often out of the control of the lessee, so they say accounting for the value and price of an asset exclusively as an owned asset isn’t appropriate in certain situations. In short, they want the focus back on the actual contract and away from the underlying asset.

When regulators and finance executives can’t agree on the definition of an asset, there are going to be a lot of questions. Right now this is only a proposal and hopefully the boards will clear up some of this confusion before they actually vote on the project.

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More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Determining Asset Property Class – Part 2

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Recently we put up a post on Determining Asset Property Class. It referenced IRS Publication 946 and the importance of choosing the correct property class. Today, we follow that up post by showing how Bassets eDepreciation can simplify this process.

Selecting the appropriate property class is a critical step in determining the correct annual depreciation amount. The property classes are listed in Appendix B of IRS Publication 946. A manual lookup of each class can be very time consuming during asset entry, so Bassets eDepreciation now includes a handy Asset Class form as shown below:

This feature provides an easy retrieval of the accurate IRS property class. As you scroll through the list of asset classes, the correct values for each class are shown below. These values include property type, listed property, class life years, bonus code and section 179. In addition, the years, depreciation method and first year convention are displayed for GDS, ADS and AMT.

Combining a property class lookup with the business rules logic of Bassets eDepreciation allows for intelligent data entry and consistency in all of your business assets.

Questions or comments about this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Determining Asset Property Class – IRS PUB 946

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IRS Publication 946 explains how you can use depreciation to recover the cost of business or income-producing property. One of the key elements in determining the correct annual depreciation amount is selecting the appropriate property class. The property classes are listed in Appendix B of this publication with the class life and correct recovery periods for both General Depreciation System (GDS) and the Alternative Depreciation System (ADS).

Bassets eDepreciation includes an enhanced version of the IRS property class table with the following information for each asset class:

  • Property Type
  • Listed Property
  • Depreciation Method
  • First Year Convention
  • Recovery Periods
  • Bonus Code
  • Section 179
  • GDS or ADS

The asset classes can then be associated with your corresponding General Ledger codes. This allows the business rules in Bassets eDeprciation to set the correct default depreciation values during asset data entry and ensure correct calculations.

Source: Publication 946 – How To Depreciate Property

Questions or comments about this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

How to Use Property Class Life Tables

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In 1986, assets of different classes were given associated class lives.  These class lives are formatted into tables that are viewable on the IRS website under Publication 946.  Using these class life tables can be confusing to many.  Such confusion may occur because the tables are lengthy, some assets have no class life with assigned recovery periods, and other assets fall into multiple asset classes.  This will hopefully serve as a simplifying guide as to how to approach and use the tables.

Using Tables B-1 and B-2
As is stated on the IRS website, one needs to look at both Table B-1 and B-2 to identify the correct recovery period.  Normally, if the asset is listed under B-1, the associated recovery period there is used.  However, you must then also look at Table B-2 to see if the asset specifically matches an activity for use as listed in that table.  If it does, the recovery period from Table B-2 overrides the less specific value found in B-1.  Conversely, if there is no specific match in Table B-2, or if it is specifically excluded, the recovery period from Table B-1 stands.

What if Property is not listed under either table?
If this is the case, you should consult the end of Table B-2 to find Certain Property for Which Recovery Periods Assigned.  Normally, the recovery periods used will be 7 years when using the General Depreciation System (GDS) and 12 years under the Alternative Depreciation System (ADS).

Hopefully this gave you a basic understanding of class life tables.  Should you have any questions, please feel free to ask them here or on the questions page.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.