Chapter8_Notesinclass

Chapter8_Notesinclass - Week 1 March 3-4 Depreciation, Cost...

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Unformatted text preview: Week 1 March 3-4 Depreciation, Cost Recovery, Amortization, and Depletion LEARNING OBJECTIVES After completing this section, you should be able to: 1. Understand the rationale for the cost consumption concept and identify the relevant time periods for depreciation, ACRS, and MACRS. 2. Determine the amount of cost recovery under MACRS. 3. Recognize when and how to make the 179 expensing election, calculate the amount of the deduction, and apply the effect of the election in making the MACRS calculation. 4. Identify listed property and apply the deduction limitations on listed property and on luxury automobiles. 5. Determine when and how to use the alternative depreciation system (ADS). 6. Identify intangible assets that are eligible for amortization and calculate the amount of the deduction. 7. Determine the amount of depletion expense including being able to apply the alternative tax treatments for intangible drilling and development costs. 8. Identify tax planning opportunities for cost recovery, amortization, and depletion. Reading Assignment: Most Important: Concepts Relating to Depreciation 8-3 to 8-4 MACRS 8-4 to 8-9 Expense Assets (179) 8-12 to 8-13 Listed Property 8-13 to 8-15 Amortization and Depletion 8-20 to 8-26 Less Important: Remainder of Chapter 8 IRS Publication 946 (www.irs.gov) Once capitalized, the costs of those assets are recognized as depreciation charges. In tax language that is often called cost recovery . Hopefully, youve all been exposed to this concept in your financial accounting courses. Tax has the same concept BUT does execute it in a slightly different way. For accounting purposes determine the useful life and depreciate (its a little more complicated but that summarizes the concept) Code Section 167 and 168: 167 says you can take depreciation as a deduction. 168 says how to do it. For tax purposes, determine: (1) When was the asset placed into service? (2) What cost recovery system applies? (3) What is the class life? (4) What is applicable method? (5) What is the applicable recovery period (6) What is the applicable convention (7) What is the adjusted basis of the property? Placed into service The date an asset was placed in service is the key date NOT the date it was purchased. For items such as a building which may have a portion of the total assets enter into service, only that portion is allowed a depreciation deduction....
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This note was uploaded on 04/20/2008 for the course ACCTG 322 taught by Professor Gill during the Spring '08 term at San Diego State.

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Chapter8_Notesinclass - Week 1 March 3-4 Depreciation, Cost...

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