Concepts guide - Depreciation

[Derek Atkins]

hi,

I think historically the concepts guide has been for personal users.
I don't think it's been expanded for small-business users.  A separate
section on depreciation for personal vs. small-business is probably
appropriate.

-derek

David Harrison <DavidHarrisonCGA at gmail.com> writes:

> 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.
>
> 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.  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.
>
> 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! ;)
>
> Thanks for your thoughts
>
> Dave
>
> p.s. Does anyone want a gmail account?  I have 6 invites.  Send me an
> email off-list if you want one.
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-- 
       Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
       Member, MIT Student Information Processing Board  (SIPB)
       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
       warlord at MIT.EDU                        PGP key available