Concepts guide - Depreciation

[Jon Lapham]

David Harrison wrote:
> On Fri, 29 Oct 2004 18:30:46 -0300, Jon Lapham <lapham at jandr.org> wrote:
> 
>>Well, I think it is better to be accurate/complex than simple/wrong.
>>So, I changed the definition to your "...expensing capital purchases
>>over time...".
> 
> Just nit-picking, but shouldn't it be "Depreciation is the accounting
> method..." not "account method".

Yup.  Fixed.

>>Oh, I forgot to ask before.  The definition of "Book depreciation"
>>should mention something about accurately reflecting resale value?  (as
>>opposed to "tax depreciation") Or is that not true?
> 
> No, book depreciation has nothing to do with resale value.  Let me try
> an example.
> 
> You purchase a computer for $1000.00.  Estimated useful life 5 years
> with no salvage value.  For financial statement purposes you decide on
> straight line depreciation.  The "book depreciation" is then is
> $200.00 per year.

Ah, okay, so then the definition should mention something about "per 
period"?  I do not like this wording... suggestions?  The problem with 
the current definition is that it could be interpreted to mean the total 
depreciation, $1000 in the example above.

One other confusion I have with book depreciation.  In the depreciation 
schemes section we say "...for tax purposes, you will need to depreciate 
your assets at a certain rate.  This is called tax depreciation.  For 
financial statement purposes you are free to choose whatever method you 
want.  This is book depreciation."  So, shouldn't this distinction also 
be made in the definition of book depreciation?

Current:
Book depreciation - this is the amount of depreciation that you record 
in GnuCash.

Proposed:
Book depreciation - this is the amount of depreciation that you record 
in your finiancial statements per depreciation period.


> Try this:
> 
> "As opposed to personal finance where the goal is tracking personal
> worth, business is concerned with matching the expense of purchasing
> capital assets with the revenue generated by them.  This is done
> through book depreciation.  Businesses must also be concerned with
> local tax laws covering depreciation of assets.  This is known as tax
> depreciation.  The business is free to choose whatever scheme it wants
> to record book depreciation, but the scheme used for tax depreciation
> is fixed.  More often than not this results in differences between
> book and tax depreciation, but steps can be taken to reduce these
> differences."

Looks good to me.  I put your text in.

> If you use this, then I would get rid of the second paragraph in that
> section as it is somewhat redundant.  The "steps that can be taken..."
> sentence may need further explaining, but I did touch on that in the
> last sentence in the first paragraph in the Depreciation Schemes
> section on http://www.gnucash.org/docs/v1.8/C/gnucash-guide/dep_value1.html.
>  Basically, the step is to choose the same methods for book and tax
> depreciation.

Okay, I removed the second paragraph, let's see how that reads.

These changes have been sent to the web page:
http://www.gnucash.org/docs/v1.8/C/gnucash-guide/dep_concepts1.html

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  Jon Lapham  <lapham at jandr.org>                Rio de Janeiro, Brasil
  Personal: http://www.jandr.org/
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