Concepts guide - Depreciation

[Jon Lapham]

David Harrison wrote:
> I was reading chapter 11 of the concepts guide regarding depreciation
> and noticed a significant error.
> 
> A question, though, before I get to the error.  For whom is the
> concept guide written?  If it is for someone who is tracking there
> home expenses and are concerned about recording the value of their
> house, car, etc.  then the chapter makes sense.  If it is aimed at the
> small business, then the reason behind depreciation is incorrect.  If
> it's aimed at both, then we need to rework the concept guide and
> separate the issues.

You are absolutely correct.  In fact, the same argument could be made 
for many of the Concepts Guide chapters.  Many moons ago, I pointed this 
out and suggested dividing the Concepts Guide into a personal user part 
and a separate one for businesses.  The idea was not received well.

http://www.gnucash.org/pipermail/gnucash-devel/2003-August/009760.html

The general idea in the Concept Guide is described here:
http://www.gnucash.org/docs/v1.8/C/gnucash-guide/oview_about1.html

...whch is that Chapter 1-4 are generic ideas, applicable to personal 
and business use.  Chapters 5-10 are mostly aimed at personal users, and 
Chapters 11-14 (Depreciation, Accounts Receivable, Accounts Payable, 
Payroll) are mostly for business use.

> Here's the issue.  Depreciation is not the recording of the change in
> value of an asset, it is the matching of the expense of purchasing the
> asset with the revenue that that asset will produce.  

Can you try to work the above paragraph into the docs somewhere?  If you 
want, just copy and paste from the web-based docs and email me the 
changes, I can put your contributions into the Concepts Guide.  Just 
tell me what the URL is you are working on if you send me new text.

Start here:
http://www.gnucash.org/docs/v1.8/C/gnucash-guide/

> For example, if
> an asset will produce income for 5 years on an even basis every year,
> then a straight line depreciation would be appropriate.  Or, if an
> asset with produce x number of dollars per man hour used, then it
> should be depreciated based on the number of man hours it is used over
> the estimated number of man hours it will be used over it's entire
> life.

Okay, but aren't you simply describing a new depreciation scheme?
http://www.gnucash.org/docs/v1.8/C/gnucash-guide/dep_value1.html#dep_valueschemes2

We currently describe the linear, geometric, and sum of digits schemes. 
  What you mention could simply become a fourth depreciation scheme, 
maybe entitled "man hours".  No?

> Although we may in the future, for capital assets are not written up
> if the value increases.  Nor would the carrying value (cost less
> depreciation) be written down if the market value is less than the
> carrying value. Note that I'm talking about capital assets, not
> investments, inventory, or like instruments that are recorded at the
> lower of cost or market value.  Nor am I talking about intangible
> assets, like trademarks, patents, goodwill - that's a whole other
> topic.
> 
> Anyway, I started working on rewriting the chapter, but I stopped
> because I wanted to clarity who the audience was before I wasted all
> my time for nothing! ;)

I would supposed that the depreciation chapter should be "mostly" aimed 
at business use, but should still be usable by a personal user.

Thanks for any clarification you can bring to the depreciation chapter. 
  I will be happy to work with you to get things up to snuff.

-Jon

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