Category Archives: News

Depreciation Expense of Property, Plant & Equipment

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Depreciation Expense of PropertyIn a recent opinion piece by Michael Evans on CFO World, he gives a very clear description of how companies can improve depreciation of corporate property:

A common problem in corporate real estate is when a property comes to the end of its useful life and needs to be sold and there is the dawning realization that the net book value of the property is well in excess of the potential sales proceeds. Bad news – an unwelcome hit to the profit and loss (P&L) account and substantially lower cash receipts than may have been expected.

In the story, he details several points that are often overlooked:

  • Owned properties are recorded at historic costs
  • Property is usually depreciated using a straight line method
  • Cost increases with capital improvements
  • Replaced assets should be written off
  • Assign the correct residual value
  • Employ the proper useful life

The combination of overinflated cost bases and excessive useful lives and residual values that bear little relation to the market mean that all too often the depreciation of property assets is understated and net book values are overstated in property accounts. So when you’re looking to sell that corporate property and you’re facing a huge loss – don’t blame the corporate real estate team, don’t blame the property market – blame the depreciation policy, stupid.

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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.

Excel Spreadsheet Errors Can Be Very Costly

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Excel-errorIn a recent article published on CNNMoney, Steven Gandel, a writer for Fourtune examines some severe errors in Excel spreadsheets: The popular Microsoft program has been implicated in the financial crisis, Europe’s growth problems, the U.S.’s weak economic recovery, and pretty much everything else.

Prominent financial blogger James Kwak calls Excel “one of the greatest, most powerful, most important software applications of all time.” But perhaps we ask too much of the program, or perhaps of our ability to cut and paste. In the past few years, Excel has been implicated in some of the biggest blunders on Wall Street and in finance in general.

In the article, he then details some mistakes which had significant implications on the spreadsheet owner’s organization:

  • Two Harvard professor’s incorrectly predict economic growth
  • Risk officers at JPMorgan underestimate potential investment risk
  • MF Global bets on Europe with outdated information
  • Barclays misses nearly 200 hidden rows of bad assets which then became part of the deal for Lehman Brothers
  • Utah’s office of education vastly underestimates public school enrollment
  • Fannie Mae profitability was grossly overstated
  • Native Americans miscalculate the value of NYC

So while Excel is an excellent tool for performing financial calculations, it is not without problems. It is very easy to make a mistake in a formula, miss hidden rows or incorrectly copy & paste some key information. We are not recommending that you stop using Excel, but as you can see from this article, you should proceed with caution.

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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.

Obama’s Bonus Depreciation Plan – Good for Business, Bad for Debt?

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reuters.com

reuters.com

From a business perspective, we all look at bonus depreciation as a good thing. However, it appears as though too much of a good thing may be bad for our national debt. In an article in The Fiscal Times, authors Brianna Ehley and Josh Boak look into President Obama’s strategy of bonus depreciation as a means to stimulate the economy.

As part of his 2009 stimulus package, the president tried to jumpstart the economy for part of 2010 and 2011 by letting companies deduct the full cost of new computers, machinery and office equipment—what accountants call “bonus depreciation.” The plan halved the size of the deduction for 2012 and 2013, even though the results appear to be lackluster.

One industry official who advocated for the write-off confided to The Fiscal Times, “It would have been worse without it, sure, but it didn’t have that much effect on decisions to invest, since the economic uncertainty still had business owners extremely worried about future sales.”

The Government Accountability Office revealed this month that companies saved $76.1 billion on their 2011 tab with the IRS.  But it’s unclear how crucial it has been to a slow recovery.

The White House forecast back in 2010 that the 100 percent depreciation would produce $50 billion in new private investment. It would come at a $150 billion price tag for two years, but the additional corporate spending and return to normal growth patterns would bring that expense down to $30 billion over a decade, the administration said in a white paper.

What complicates those initial White House estimates is that a strong recovery never materialized, and the administration continued the accelerated depreciation—albeit at 50 percent—for 2012 and 2013.  And the costs of the accelerated tax write-off may have backfired by robbing federal coffers of substantial revenue.

According to Steve Wamhoff, an analyst at the Citizens for Tax Justice the constant use of bonus depreciation—which President George W. Bush also relied on in 2002, 2003, 2004 and 2005—make it less likely that the government will ever fully recover the $120 billion in revenues first projected by the Obama administration.

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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.

Permanently Extend 15 Year Tax Depreciation on Leasehold Improvements

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15 Year DepreciationCongress has allowed the tax depreciation period on 39 year property to use a 15 year tax depreciation period since 1996. A couple of senators have recently introduced a bill to make this temporary extension permanent. This would promote investments and new construction at restaurants and other commercial properties.

In addition to investment, extending this tax break could create new jobs in construction and at commercial properties. Employers will need additional workers as they expand their restaurants, stores and offices.

In an article from Star News, author Kevin Maurer talks about the efforts of U.S. Sen. Kay Hagan of North Carolina:

Essentially, business owners can recoup the cost of improvements made to their business. The proposed measure would help the state’s $15 billion restaurant industry and its 400,000 jobs, she said. The improvements will also provide needed jobs and dollars to the construction industry.

“It would also provide much-needed certainty that will allow business owners to plan for the future,” Hagan said.

According to Hagan’s release, Congress has temporarily extended the 15-year depreciation period since 1996. The current tax depreciation period is 39 years.

“As a restaurant owner, I make frequent improvements to keep up with normal wear and tear,” said Frank Scibelli, CEO of FS Food Group in Charlotte in a statement. “A 39-year schedule makes no sense in today’s business environment and I’m pleased Senator Hagan is working to make this needed change.”

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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.

Letterman – Top Ten Things You Don’t Want To Hear From Your Accountant

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LettermanIt has long been said that accountants do not have a great sense of humor. Perhaps, based on the work they do, some of that reputation is deserved. However, ten New York accountants recently went against type and took part in a Late Show Top Ten list in order to prove that stereotype wrong. Did they succeed? We’re not sure that any them should give up their day job, but the clip is definitely funny! Watch and judge for yourself.

Questions or comments on 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.