CMA Study Group

Depreciation

  • 1.  Depreciation

    Posted 25 days ago
    Dear All

    Hello

    In calculating depreciable base, sometimes salvage value is subtracted from original cost, sometimes it is not deducted in some some books. I am in confusion. Is there any special rules for tax purpose regarding this calculation ?

    Regards

    Raja

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    Raja Roy
    Chief Financial Officer
    Chittagong
    Bangladesh
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  • 2.  RE: Depreciation

    Posted 24 days ago
    For book purposes, the salvage value is always taken into account ​except when utilizing a declining balance method.(200% or 150%).  The declining balance method uses a rate of depreciation that is a factor of the straight-line rate.  Despite not using the salvage, the asset is never depreciated below it's salvage value.

    In the United States, tax depreciation is governed by MACRS derived from the tax code.
    When computing tax depreciation, the method utilized in most cases is 200% declining balance depreciated to zero.  Tax also has other conventions that have to be considered in addition to the rates applied.  Essentially, tax depreciation and it's requirements are governed by the Internal Revenue Code.


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    Michael Henry
    Controller
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  • 3.  RE: Depreciation

    Posted 24 days ago
    Salvage value has to be subtracted in order to calculate depreciable value. Other wise the asset depreciation will be over-stated and hence, more expense will be showed in the books! Even if the salvage value is $ 1, you need to deduct it and calculate the depreciation accordingly!

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    Zakaria Iqbal Patel
    General Accountant & IKTVA Representative
    Khonaini International Co.
    Jubail, Eastern Province
    Kingdom of Saudi Arabia
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  • 4.  RE: Depreciation

    Posted 24 days ago
    There isn't just one method of depreciation.
    You are always only going to depreciate the depreciable base and not touch the salvage value.

    However, the method of depreciation that is utilized does differ in it's application.

    Any declining balance method does not subtract the salvage upfront.  It deals with salvage at the end.


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    Michael Henry
    Controller
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