Depreciation+and+Income+Taxes+handouts

Depreciation+and+Income+Taxes+handouts - Depreciation and...

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Depreciation and Income Taxes
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Depreciation and Income Taxes Depreciation Concepts and Terminology Depreciation
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Depreciation and Income Taxes Depreciation Concepts and Terminology Depreciable Property In general, a property is depreciable if it meets the following requirements: it must be used in business or held to produce income it must have a determinable useful life and the life must be longer than one year it must be something that wears out, decays, gets used up, becomes obsolete, or loses value from natural causes it is not inventory, stock in trade, or investment property
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Depreciation and Income Taxes Depreciation Concepts and Terminology Depreciable property is classified as either tangible or intangible o Tangible property property that can be seen or touch it includes two main types called personal property and real property o Intangible property personal property such as copyright, patent, or franchise
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Depreciation and Income Taxes Depreciation Concepts and Terminology A company can begin to depreciate property it owns when the property is placed in service for use in the business and for the production of income. Property is considered to be placed in service when it is ready and available for a specific use, even if it is not actually used yet. Depreciation stops when the cost of placing an asset in service has been recovered.
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Depreciation and Income Taxes Depreciation Concepts and Terminology Depreciation Methods and Related Time Periods Time Period Method Before 1981 Classical/Historical Methods of Depreciation: Straight Line (SL) Declining Balance (DB) Sum of the Years Digits (SYD) After 1980 and Before 1987 Accelerated Cost Recovery System (ACRS) After 1986 Modified Accelerated Cost Recovery System (MACRS)
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Depreciation and Income Taxes Allowable Methods (under NIRC) Straight line Declining balance (with a rate limit) Sum of the years digits method Any other method prescribed by the Secretary of Finance upon the recommendation of the of the BIR Commissioner
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Depreciation and Income Taxes Depreciation Concepts and Terminology Adjusted (Cost) Basis – original cost basis of the asset, adjusted by allowable increases or decreases – used to compute depreciation and depletion deductions. Basis, or Cost Basis – initial cost of acquiring an asset (purchase price plus any sales taxes), including transportation expenses and other normal costs of making the asset serviceable for its intended use – also called the unadjusted cost basis
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Depreciation and Income Taxes Depreciation Concepts and Terminology Book Value (BV) – the worth of a depreciable property as shown on the accounting records of a company – represents the amount of capital that remains invested in the property and must be recovered in the future through the accounting process – may not be a useful measure of its market value
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Depreciation and Income Taxes Depreciation Concepts and Terminology
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This note was uploaded on 05/19/2011 for the course IE 2 taught by Professor A during the Spring '11 term at University of the Philippines Diliman.

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Depreciation+and+Income+Taxes+handouts - Depreciation and...

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