Dr. Payne, a dentist, purchased various fixed assets for his dental practice and residential properties. He calculated $91,298 in depreciation expense for the dental practice assets using percentages and lives from his financial reporting system. However, the chapter will discuss whether he correctly calculated this amount and if he can claim depreciation for the residential rental properties. It will also cover the general rules and considerations for depreciation, cost recovery, amortization and depletion of business and income-producing assets according to the Internal Revenue Code.
The document discusses allocating various expenses across quarters according to different accounting standards. Under IFRS, allocating uneven maintenance costs and deferring some tax benefits allows $7 cents per share in savings compared to original figures. However, under US GAAP, greater cost deferral is permitted, yielding $10.25 cents per share in savings versus original figures due to things like advertising matching revenues. In total, using different accounting standards provides opportunities to reduce expenses allocated to the current quarter.
The document discusses flexible budgets and their advantages over static planning budgets. Flexible budgets can be prepared for any actual level of activity, allowing for "apples to apples" cost comparisons. They show costs that should have been incurred at the actual activity level, helping managers better evaluate performance and control costs. The document uses an example of a lawn care business to illustrate how a flexible budget accounts for actual activity being different than planned and allows for a more accurate analysis of variances.
The document provides information on classifying, measuring, recording, and reporting on long-lived assets including property, plant, and equipment, natural resources, and intangibles. It discusses the different depreciation methods including straight-line, units-of-production, and declining balance. The document also covers asset impairment, disposals of long-lived assets, and international differences between US GAAP and IFRS reporting standards.
This document discusses accounting for plant and intangible assets. It covers determining the cost of plant assets, capital vs expense expenditures, depreciation methods including straight-line and declining balance, accounting for disposals and impairments, nature of intangible assets including goodwill, depletion of natural resources, and cash flows from plant transactions.
The document provides information needed to prepare consolidated financial statements for the Roby Group as of May 31, 2012. It includes details on Roby's acquisitions of investments in Hai and Zinc, including percentages acquired and consideration paid. It also provides information on a joint operation, impairment of property, plant and equipment, factoring of receivables, sale and repurchase of land, and intercompany transactions that need to be eliminated. The required task is to prepare a consolidated statement of financial position for the Roby Group based on the information given.
This document outlines the structure and requirements of a financial accounting exam. It includes 7 questions that assess understanding of accounting concepts like the bases of accounting, true and fair view, not-for-profit entities, substance over form, and accounting standards. It also includes 4 case studies requiring the application of IFRS/IAS standards to issues like asset revaluation, land sales, foreign exchange gains/losses, and consolidated financial statements. The final section provides incomplete financial records for a company and requires the candidate to prepare full financial statements in accordance with accounting principles.
The document defines depreciation and discusses its objectives according to accounting concepts. It explains that depreciation involves allocating the cost of a depreciable asset over its estimated useful life. Depreciable assets are those used in business operations for more than one period. Common depreciation methods are discussed, including straight-line, reducing balance, and production output methods. The accounting treatment for depreciation expense and accumulated depreciation is provided. Disposal of assets is also addressed.
This document provides an overview of long-lived tangible and intangible assets. It defines long-lived assets as assets with useful lives longer than one year that are used in operations. It discusses acquisition and capitalization of costs, depreciation methods to allocate costs over the asset's useful life, impairment, disposal, and ratios to analyze long-lived assets. The learning objectives cover defining and classifying long-lived assets, applying the cost principle, depreciation methods, impairment effects, and analyzing acquisition, use and disposal of tangible and intangible long-lived assets.
The document discusses allocating various expenses across quarters according to different accounting standards. Under IFRS, allocating uneven maintenance costs and deferring some tax benefits allows $7 cents per share in savings compared to original figures. However, under US GAAP, greater cost deferral is permitted, yielding $10.25 cents per share in savings versus original figures due to things like advertising matching revenues. In total, using different accounting standards provides opportunities to reduce expenses allocated to the current quarter.
The document discusses flexible budgets and their advantages over static planning budgets. Flexible budgets can be prepared for any actual level of activity, allowing for "apples to apples" cost comparisons. They show costs that should have been incurred at the actual activity level, helping managers better evaluate performance and control costs. The document uses an example of a lawn care business to illustrate how a flexible budget accounts for actual activity being different than planned and allows for a more accurate analysis of variances.
The document provides information on classifying, measuring, recording, and reporting on long-lived assets including property, plant, and equipment, natural resources, and intangibles. It discusses the different depreciation methods including straight-line, units-of-production, and declining balance. The document also covers asset impairment, disposals of long-lived assets, and international differences between US GAAP and IFRS reporting standards.
This document discusses accounting for plant and intangible assets. It covers determining the cost of plant assets, capital vs expense expenditures, depreciation methods including straight-line and declining balance, accounting for disposals and impairments, nature of intangible assets including goodwill, depletion of natural resources, and cash flows from plant transactions.
The document provides information needed to prepare consolidated financial statements for the Roby Group as of May 31, 2012. It includes details on Roby's acquisitions of investments in Hai and Zinc, including percentages acquired and consideration paid. It also provides information on a joint operation, impairment of property, plant and equipment, factoring of receivables, sale and repurchase of land, and intercompany transactions that need to be eliminated. The required task is to prepare a consolidated statement of financial position for the Roby Group based on the information given.
This document outlines the structure and requirements of a financial accounting exam. It includes 7 questions that assess understanding of accounting concepts like the bases of accounting, true and fair view, not-for-profit entities, substance over form, and accounting standards. It also includes 4 case studies requiring the application of IFRS/IAS standards to issues like asset revaluation, land sales, foreign exchange gains/losses, and consolidated financial statements. The final section provides incomplete financial records for a company and requires the candidate to prepare full financial statements in accordance with accounting principles.
The document defines depreciation and discusses its objectives according to accounting concepts. It explains that depreciation involves allocating the cost of a depreciable asset over its estimated useful life. Depreciable assets are those used in business operations for more than one period. Common depreciation methods are discussed, including straight-line, reducing balance, and production output methods. The accounting treatment for depreciation expense and accumulated depreciation is provided. Disposal of assets is also addressed.
This document provides an overview of long-lived tangible and intangible assets. It defines long-lived assets as assets with useful lives longer than one year that are used in operations. It discusses acquisition and capitalization of costs, depreciation methods to allocate costs over the asset's useful life, impairment, disposal, and ratios to analyze long-lived assets. The learning objectives cover defining and classifying long-lived assets, applying the cost principle, depreciation methods, impairment effects, and analyzing acquisition, use and disposal of tangible and intangible long-lived assets.
Dr. Payne correctly calculated the depreciation expense for his dental practice assets using MACRS depreciation rates. He will also be able to claim depreciation deductions for the rental properties he converted his original residence and purchased condo into, using the fair market value of the residence as its basis since it was previously used for personal purposes. The document provides an overview of depreciation, amortization, and depletion deductions for business and rental property assets, and examples and rules for calculating MACRS depreciation using conventions like half-year and mid-quarter.
Depreciation is allocating the cost of plant and equipment over its useful life. It is a non-cash expense that allows the decreasing value of a capital asset to be deducted from taxes. There are several methods to calculate depreciation including straight-line, units-of-production, and accelerated methods. Partial year depreciation must also be calculated if an asset is placed into service during an accounting period.
TAX DEPRECIATION AND TANGIBLE PROPERTY REGULATIONS UPDATE without detail_for ...Lora Bahrey-Ament
The document discusses updates to tax depreciation and tangible property regulations:
- Section 179 expensing amounts for small businesses have been made permanent at $500,000, with phase outs for purchases over $2 million.
- Bonus depreciation has been extended through different percentages until 2020.
- 15-year recovery periods have been made permanent for certain qualified improvement property.
- New qualified improvement property rules provide more flexibility than prior qualified leasehold, restaurant, and retail improvement property rules.
- Regulations clarify capitalization and expensing treatment of amounts to acquire, maintain, repair or replace tangible property.
An overview of the tax treatment of expenditures related to tangible property in accordance with the new regulations, including capitalization of expenditures, unit of property, the deminimis rule and dispositions.
ch10-Acquisition and disposition of PPE.pptmorium2
This chapter discusses accounting for property, plant, and equipment. It describes how PP&E assets are initially valued at historical cost, including acquisition costs. It also discusses accounting for self-constructed assets and interest capitalization. The chapter explains how costs after acquisition are treated, including capitalizing improvements versus expensing repairs. It concludes by covering accounting for dispositions of PP&E assets.
This document discusses accelerated cost recovery and depreciation. It covers topics such as capitalized costs versus operating expenses, depreciation legislation including MACRS, terminology, adjusted tax basis, repair regulations, depreciation methods, conventions for personal and real property, section 179 expensing, and bonus depreciation. Key points include how depreciation and amortization allow businesses to recover capitalized costs of assets over time for tax purposes.
2014 wla conference big tax ideas that save real moneyDebby Keegan
This presentation highlights the top 5 tax things you need to know for 2014 if you're in the lodging industry. This high level discussion means you can leave your slide rule and pocket protectors at home! We will focus on how you can put real money back into your pockets.
This document discusses how conducting a cost segregation study can maximize tax benefits for property owners. It explains that a cost segregation study separates building costs into components that can be depreciated over different time periods, providing larger annual tax deductions over a shorter time frame. Conducting this study for a new $5 million building was shown to provide over $800,000 more in tax benefits compared to standard depreciation methods. The document also outlines other benefits like deducting replacement costs and discusses how various property types could benefit from a cost segregation study.
Cost-segregation studies allow taxpayers to write off a much greater percentage of their buildings (and tenant improvements) over a shorter time period. More specifically, it's an engineering-based approach that allows building owners to reallocate Code Sec. 1250 (real property) to Code Sec. 1245 (personal property), which increases depreciation deductions, thereby reducing the owner's tax burden.
The document discusses key concepts regarding property, plant, and equipment (PPE) accounting. It defines PPE as long-term tangible assets used in operations to generate revenue. The cost of PPE includes purchase price and expenditures to prepare the asset for use. Interest incurred during construction may be capitalized. PPE is depreciated over its useful life to allocate cost against profits. The document provides examples of costs included in PPE for land, buildings, and equipment.
Construction Seminar Tax and Audit TipsBobby Bragg
This document summarizes a presentation on tax tips and traps for construction contractors. It discusses construction accounting methods, maximizing depreciation deductions, the domestic production activities deduction, and entertainment/per diem deductions and recordkeeping. It provides tips on using these tax strategies effectively and warns of potential limitations and pitfalls to watch out for. The presentation was given by Kim Smith and other tax professionals at Jackson Thornton & Marcus LLC, an accounting firm providing tax and consulting services to construction contractors.
Financial accounting mgt101 power point slides lecture 20Abdul Wadood Ansary
This document provides an overview of capital work in progress, revaluation of fixed assets, and accounting for the disposal of fixed assets when depreciation is charged on the basis of use. It discusses journal entries for capital work in progress, how to account for disposal of assets, and the rules and accounting treatment for revaluing fixed assets. The document also includes an example to illustrate calculating depreciation and the written down value of a disposed asset when depreciation is charged based on use of the asset.
The document provides an overview of federal and state historic tax credits (HTC) for rehabilitating income-producing historic buildings. It discusses the qualifications for the credits, how to apply, calculating qualified rehabilitation expenditures, cost certifications, case studies, and tax implications. The 20% federal HTC is a dollar-for-dollar reduction in tax liability, while Pennsylvania offers a 25% state credit. Proper use of the credits can provide millions in equity for rehabilitation projects.
The document discusses accounting for fixed assets and depreciation. It defines fixed assets and lists costs that can be included in the initial cost of acquiring buildings, machinery, equipment, and land. It also discusses capital vs revenue expenditures and how to account for them. The document explains different depreciation methods including straight-line, units-of-production, and double-declining balance. It provides examples of calculating depreciation expense under each method.
Trudy and Jim Reswick want to make an investment to enhance their financial security. They are considering investing $100,000 that they would borrow at 8% interest in one of three options: a portfolio of securities, an orange grove partnership with expected tax losses for 5 years then profits, or an apartment rental partnership also with 5 years of losses then profits. They want to choose the best after-tax return over 10 years. The chapter discusses how the passive activity loss rules and at-risk limitations may impact the tax benefits of each option.
This document provides an overview of cost recovery methods used in tax law to recover the costs of assets over time. It discusses the concepts of basis, depreciation, amortization, and depletion. Depreciation allows businesses to deduct the costs of tangible personal and real property. Amortization applies to intangible assets and is deducted over a specific period. Depletion allows natural resources to recover their capital costs. The document provides examples of calculating cost recovery for various asset types.
The document discusses several tax credits available to individuals and businesses, including:
1) Education tax credits that can help offset tuition and other education expenses.
2) The research and experimentation tax credit that incentives private sector investment in research.
3) Tax credits for rehabilitation expenditures, hiring targeted groups of employees, and other activities.
This chapter discusses accounting for property, plant, and equipment (PP&E). It describes how PP&E assets are initially valued at historical cost, including acquisition costs. It also discusses accounting for self-constructed assets and interest capitalization during construction. The chapter covers accounting for costs after acquisition, including capitalizing improvements versus expensing repairs. It concludes with the accounting treatment for disposal of PP&E assets.
The document summarizes changes to estate laws in 2011 and 2012. Key points include:
- The federal estate tax exemption was $5 million in 2011 and increased to $5.12 million in 2012. Tennessee's exemption remained at $1 million.
- The federal estate and gift tax rate was 35% in 2011-2012. Tennessee's maximum rate is 9.5%.
- Portability between spouses was extended, allowing married couples to shield up to $10 million from federal estate taxes. Tennessee does not recognize portability.
- Other changes included the gift tax annual exclusion amount and generation-skipping tax exemption and rates.
The document discusses key concepts related to accounting for property, plant and equipment (PPE) as per Indian Accounting Standard (IndAS) 16. It covers initial recognition of PPE at cost, components of cost, subsequent measurement using cost or revaluation model, depreciation methods, impairment and derecognition. It also includes examples on capitalization of borrowing costs, treatment of restoration costs, and practice questions related to accounting for PPE.
This document provides an overview and review of key concepts from Chapter 4 of the textbook on the income statement and related information. It discusses the purpose and limitations of the income statement, its major elements, different formats, sections, and how to report various income items such as discontinued operations, extraordinary items, and changes in accounting principles. It also covers earnings per share, the retained earnings statement, comprehensive income, and the statement of stockholders' equity.
The document summarizes the key steps in the accounting cycle. It discusses how transactions are initially recorded in journals and then posted to the general ledger. An unadjusted trial balance is prepared. Adjusting entries are made for accruals and deferrals. An adjusted trial balance and financial statements are then prepared. Finally, closing entries are made to reset the nominal accounts for the next period.
Dr. Payne correctly calculated the depreciation expense for his dental practice assets using MACRS depreciation rates. He will also be able to claim depreciation deductions for the rental properties he converted his original residence and purchased condo into, using the fair market value of the residence as its basis since it was previously used for personal purposes. The document provides an overview of depreciation, amortization, and depletion deductions for business and rental property assets, and examples and rules for calculating MACRS depreciation using conventions like half-year and mid-quarter.
Depreciation is allocating the cost of plant and equipment over its useful life. It is a non-cash expense that allows the decreasing value of a capital asset to be deducted from taxes. There are several methods to calculate depreciation including straight-line, units-of-production, and accelerated methods. Partial year depreciation must also be calculated if an asset is placed into service during an accounting period.
TAX DEPRECIATION AND TANGIBLE PROPERTY REGULATIONS UPDATE without detail_for ...Lora Bahrey-Ament
The document discusses updates to tax depreciation and tangible property regulations:
- Section 179 expensing amounts for small businesses have been made permanent at $500,000, with phase outs for purchases over $2 million.
- Bonus depreciation has been extended through different percentages until 2020.
- 15-year recovery periods have been made permanent for certain qualified improvement property.
- New qualified improvement property rules provide more flexibility than prior qualified leasehold, restaurant, and retail improvement property rules.
- Regulations clarify capitalization and expensing treatment of amounts to acquire, maintain, repair or replace tangible property.
An overview of the tax treatment of expenditures related to tangible property in accordance with the new regulations, including capitalization of expenditures, unit of property, the deminimis rule and dispositions.
ch10-Acquisition and disposition of PPE.pptmorium2
This chapter discusses accounting for property, plant, and equipment. It describes how PP&E assets are initially valued at historical cost, including acquisition costs. It also discusses accounting for self-constructed assets and interest capitalization. The chapter explains how costs after acquisition are treated, including capitalizing improvements versus expensing repairs. It concludes by covering accounting for dispositions of PP&E assets.
This document discusses accelerated cost recovery and depreciation. It covers topics such as capitalized costs versus operating expenses, depreciation legislation including MACRS, terminology, adjusted tax basis, repair regulations, depreciation methods, conventions for personal and real property, section 179 expensing, and bonus depreciation. Key points include how depreciation and amortization allow businesses to recover capitalized costs of assets over time for tax purposes.
2014 wla conference big tax ideas that save real moneyDebby Keegan
This presentation highlights the top 5 tax things you need to know for 2014 if you're in the lodging industry. This high level discussion means you can leave your slide rule and pocket protectors at home! We will focus on how you can put real money back into your pockets.
This document discusses how conducting a cost segregation study can maximize tax benefits for property owners. It explains that a cost segregation study separates building costs into components that can be depreciated over different time periods, providing larger annual tax deductions over a shorter time frame. Conducting this study for a new $5 million building was shown to provide over $800,000 more in tax benefits compared to standard depreciation methods. The document also outlines other benefits like deducting replacement costs and discusses how various property types could benefit from a cost segregation study.
Cost-segregation studies allow taxpayers to write off a much greater percentage of their buildings (and tenant improvements) over a shorter time period. More specifically, it's an engineering-based approach that allows building owners to reallocate Code Sec. 1250 (real property) to Code Sec. 1245 (personal property), which increases depreciation deductions, thereby reducing the owner's tax burden.
The document discusses key concepts regarding property, plant, and equipment (PPE) accounting. It defines PPE as long-term tangible assets used in operations to generate revenue. The cost of PPE includes purchase price and expenditures to prepare the asset for use. Interest incurred during construction may be capitalized. PPE is depreciated over its useful life to allocate cost against profits. The document provides examples of costs included in PPE for land, buildings, and equipment.
Construction Seminar Tax and Audit TipsBobby Bragg
This document summarizes a presentation on tax tips and traps for construction contractors. It discusses construction accounting methods, maximizing depreciation deductions, the domestic production activities deduction, and entertainment/per diem deductions and recordkeeping. It provides tips on using these tax strategies effectively and warns of potential limitations and pitfalls to watch out for. The presentation was given by Kim Smith and other tax professionals at Jackson Thornton & Marcus LLC, an accounting firm providing tax and consulting services to construction contractors.
Financial accounting mgt101 power point slides lecture 20Abdul Wadood Ansary
This document provides an overview of capital work in progress, revaluation of fixed assets, and accounting for the disposal of fixed assets when depreciation is charged on the basis of use. It discusses journal entries for capital work in progress, how to account for disposal of assets, and the rules and accounting treatment for revaluing fixed assets. The document also includes an example to illustrate calculating depreciation and the written down value of a disposed asset when depreciation is charged based on use of the asset.
The document provides an overview of federal and state historic tax credits (HTC) for rehabilitating income-producing historic buildings. It discusses the qualifications for the credits, how to apply, calculating qualified rehabilitation expenditures, cost certifications, case studies, and tax implications. The 20% federal HTC is a dollar-for-dollar reduction in tax liability, while Pennsylvania offers a 25% state credit. Proper use of the credits can provide millions in equity for rehabilitation projects.
The document discusses accounting for fixed assets and depreciation. It defines fixed assets and lists costs that can be included in the initial cost of acquiring buildings, machinery, equipment, and land. It also discusses capital vs revenue expenditures and how to account for them. The document explains different depreciation methods including straight-line, units-of-production, and double-declining balance. It provides examples of calculating depreciation expense under each method.
Trudy and Jim Reswick want to make an investment to enhance their financial security. They are considering investing $100,000 that they would borrow at 8% interest in one of three options: a portfolio of securities, an orange grove partnership with expected tax losses for 5 years then profits, or an apartment rental partnership also with 5 years of losses then profits. They want to choose the best after-tax return over 10 years. The chapter discusses how the passive activity loss rules and at-risk limitations may impact the tax benefits of each option.
This document provides an overview of cost recovery methods used in tax law to recover the costs of assets over time. It discusses the concepts of basis, depreciation, amortization, and depletion. Depreciation allows businesses to deduct the costs of tangible personal and real property. Amortization applies to intangible assets and is deducted over a specific period. Depletion allows natural resources to recover their capital costs. The document provides examples of calculating cost recovery for various asset types.
The document discusses several tax credits available to individuals and businesses, including:
1) Education tax credits that can help offset tuition and other education expenses.
2) The research and experimentation tax credit that incentives private sector investment in research.
3) Tax credits for rehabilitation expenditures, hiring targeted groups of employees, and other activities.
This chapter discusses accounting for property, plant, and equipment (PP&E). It describes how PP&E assets are initially valued at historical cost, including acquisition costs. It also discusses accounting for self-constructed assets and interest capitalization during construction. The chapter covers accounting for costs after acquisition, including capitalizing improvements versus expensing repairs. It concludes with the accounting treatment for disposal of PP&E assets.
The document summarizes changes to estate laws in 2011 and 2012. Key points include:
- The federal estate tax exemption was $5 million in 2011 and increased to $5.12 million in 2012. Tennessee's exemption remained at $1 million.
- The federal estate and gift tax rate was 35% in 2011-2012. Tennessee's maximum rate is 9.5%.
- Portability between spouses was extended, allowing married couples to shield up to $10 million from federal estate taxes. Tennessee does not recognize portability.
- Other changes included the gift tax annual exclusion amount and generation-skipping tax exemption and rates.
The document discusses key concepts related to accounting for property, plant and equipment (PPE) as per Indian Accounting Standard (IndAS) 16. It covers initial recognition of PPE at cost, components of cost, subsequent measurement using cost or revaluation model, depreciation methods, impairment and derecognition. It also includes examples on capitalization of borrowing costs, treatment of restoration costs, and practice questions related to accounting for PPE.
This document provides an overview and review of key concepts from Chapter 4 of the textbook on the income statement and related information. It discusses the purpose and limitations of the income statement, its major elements, different formats, sections, and how to report various income items such as discontinued operations, extraordinary items, and changes in accounting principles. It also covers earnings per share, the retained earnings statement, comprehensive income, and the statement of stockholders' equity.
The document summarizes the key steps in the accounting cycle. It discusses how transactions are initially recorded in journals and then posted to the general ledger. An unadjusted trial balance is prepared. Adjusting entries are made for accruals and deferrals. An adjusted trial balance and financial statements are then prepared. Finally, closing entries are made to reset the nominal accounts for the next period.
1. The document outlines the conceptual framework for financial reporting established by the FASB. The framework consists of three levels: the objective of financial reporting, fundamental qualitative characteristics and elements, and concepts for recognition, measurement, and disclosure.
2. It describes the key components of each level, including the basic objective to provide useful information to investors and creditors, qualitative characteristics like relevance and faithful representation, and defined elements like assets, liabilities, and equity.
3. Basic assumptions and principles are also discussed, such as the monetary unit and historical cost assumptions, as well as the revenue and expense recognition principles. An exception for the cost constraint is noted.
The document summarizes key aspects of the development of financial accounting standards and principles in the United States. It discusses the roles of organizations like the SEC, FASB, AICPA and others in establishing GAAP. It also outlines challenges to financial reporting like providing nonfinancial metrics, forward-looking information and reconciling US GAAP with IFRS. Ethical considerations are an important part of the accounting profession.
The document discusses key issues related to inventory valuation and costing approaches. It covers topics such as inventory systems, costs included in inventory, cost flow assumptions (e.g. FIFO, LIFO), and advantages/disadvantages of different methods. Specifically, it provides details on LIFO, including the LIFO reserve, LIFO liquidation, dollar-value LIFO, and factors to consider when selecting an inventory valuation method.
This document provides an overview and key points about cash, receivables, and notes receivable covered in Chapter 7. It discusses the nature and reporting of cash, accounting for accounts receivable using direct write-off and allowance methods, and differences between accounts and notes receivable such as interest elements for notes. The document also covers topics like discounts, estimating uncollectible accounts, short and long-term notes receivable, and imputing interest rates for zero-interest notes.
This document discusses the time value of money concepts of compound interest, annuities, and present value. It explains that these concepts can be applied to items in financial statements like notes receivable/payable, leases, and pensions. The key concepts covered include compound interest, simple interest, compound interest tables, future and present value of single sums and annuities. Financial calculators are often used to solve time value of money problems using keys for number of periods, interest rate, present value, payment, and future value.
This document provides an overview and review of key concepts from Chapter 5 of Kieso's Intermediate Accounting textbook, which discusses the balance sheet and statement of cash flows. The chapter presents the mechanics of preparing the balance sheet and cash flow statement, including classifying assets, liabilities, equity, and disclosing relevant information. It also explains the usefulness and limitations of the balance sheet and cash flow statement for assessing a company's liquidity, solvency, and financial flexibility. The document concludes with a discussion of supplemental disclosures, techniques for disclosure, and terminology used in financial statements.
- The iDrive combines the functions of many switches into a central system that can be operated from one location.
- The main components are the Control Display screen and controller knob that allows you to navigate menus and make selections.
- For safety, only use iDrive when traffic conditions allow and avoid becoming distracted while driving. The system helps keep your focus on the road.
Dr. Sanchez has multiple retirement plans available to her, including qualified pension plans, profit sharing plans, 401(k) plans, and 403(b) tax-deferred annuity plans. Joyce is interested in learning more about the types of plans Dr. Sanchez could have and how to establish multiple retirement plans. Qualified retirement plans offer tax benefits to both employees and employers, including immediate tax deductions for employer contributions and tax-deferred earnings and growth until funds are withdrawn after retirement. Contribution limits vary by plan type but are designed to maximize long-term retirement savings over a career.
The document discusses accounting periods and methods for partnerships and partners. It addresses the following key points:
- For the Silver Partnership example, the partnership tax year would end on November 30, as this results in the least aggregate deferral of income for the partners.
- The partners would report their share of Silver's net income/loss on their tax returns for the year in which the partnership's tax year ends.
- Belinda, as a cash-basis taxpayer, would report her share of partnership income using the cash method of accounting.
- In general, a partnership tax year is determined based on the tax year of majority interest partners, then principal partners, and finally the method that results
Hazel Brown owns an arts and crafts store and is planning to replace the store equipment. She had previously taken $375,040 in depreciation deductions for the equipment. If she sells the existing equipment for $128,000, the entire $53,040 gain would be treated as ordinary income under §1245 depreciation recapture rules, rather than potentially favorable §1231 capital gain treatment. If she sells the equipment for more than its original cost, the gain up to the depreciation amount would be ordinary income, with any excess treated as capital gain.
Maurice inherited $500,000 and invested it in various assets on the advice of a financial advisor. He is now considering selling some investments and wants tax advice. The investments include stock, patents, franchises, bonds, partnerships, and real estate. Maurice does not understand the tax benefits of capital gains and wants an explanation. The chapter on capital gains and losses must be reviewed to formulate a response.
Alice inherited a house from her mother 7 months ago and is considering selling it to her nephew Dan for $275,000. As Alice's tax advisor, you need to determine the tax consequences of the sale, including whether Alice inherited or received the house as a gift, the property's basis, and whether any gain or loss will be recognized. Alice also wants to know the tax consequences of selling her personal car that she has owned for 4 months, as well as transactions involving the sale and repurchase of some stock. You will need to gather more information from Alice to advise her properly.
The document discusses various education tax credits and deductions available to Tom and Jennifer Snyder. It provides details on their dependent children attending college, including tuition amounts paid. The Snyders' adjusted gross income is $158,000. They are likely eligible for the American Opportunity Tax Credit, which is up to $2,500 per eligible student for qualified education expenses for the first 4 years of college. Their income is below the phase-out threshold for this credit. The document reviews the eligibility requirements and calculation of this and other education-related tax benefits to help the Snyders determine what tax options they have related to their children's college educational expenses.
Bob and Carol paid different amounts of federal income tax even though they had identical incomes and deductions. Carol paid $15,000 more than Bob. Adam discovered that the difference was due to Carol's accountant incorrectly treating interest from private activity bonds issued in 2010 as an AMT preference. Since this interest is not a tax preference in 2010, Carol overpaid her taxes and is eligible for a refund.
The document discusses medical expense deductions for individual income taxes. It provides examples to illustrate how medical expenses are deductible to the extent they exceed a certain percentage of adjusted gross income. It discusses what types of expenses qualify as medical expenses and provides guidance on insurance premiums and reimbursements. The examples show how married couples purchasing their first home may be able to itemize deductions for the first time, including medical expenses, home mortgage interest, and property taxes.
This document discusses various employee and self-employed related expenses that may be deductible for individual income tax purposes. It provides examples and explanations of deductible expenses related to transportation, travel, moving, education, entertainment, home offices, and other categories. One example discusses Morgan, a recent college graduate who accepted a sales job that requires travel and maintaining a home office since no workspace was provided. The document summarizes tax treatment and documentation requirements for claiming various business expense deductions.
Alice has inherited a house that has increased significantly in value. She is considering her options for the house, which include selling it, converting it to a vacation home to rent or use personally, or selling her current home and moving into the inherited house. The chapter discusses the tax treatment of like-kind exchanges, involuntary conversions, and the sale of a personal residence. It provides examples to illustrate the calculation of realized and recognized gains and losses, as well as the basis of replacement properties in nontaxable transactions.
The document provides an overview of different types of business entities including sole proprietorships, partnerships, S corporations, and regular C corporations. It discusses key aspects of forming and operating corporations, such as corporate tax rates, distributions, and Subchapter S corporations. The Todd sisters are considering starting a catering business and forming a corporate entity, and the document suggests they consider an S corporation or LLC to obtain liability protection while also allowing losses to flow through to offset their individual income in early years when losses are anticipated.
2. 2
The Big Picture (slide 1 of 2)
• Dr. Cliff Payne purchases and places in service in his dental
practice the following fixed assets during the current year:
Office furniture and fixtures $ 70,000
Computers and peripheral equipment 67,085
Dental equipment 475,000
• Using his financial reporting system, he concludes that the
depreciation expense on Schedule C of Form 1040 is $91,298.
Office furniture and fixtures ($70,000 X 14.29%) $10,003
Computers and peripheral equipment ($67,085 X 20%) 13,417
Dental equipment ($475,000 X 14.29%) 67,878
$91,298
3. 3
The Big Picture (slide 2 of 2)
• In addition, during the current year, Dr. Payne
purchased another personal residence for $300,000
– He converts his original residence to rental property.
• He also purchased a condo for $170,000 near his
office that he is going to rent.
• Has Dr. Payne correctly calculated the depreciation
expense for his dental practice?
– Will he be able to deduct any depreciation expense for his
rental properties?
• Read the chapter and formulate your response.
4. 4
Cost Recovery
• Recovery of the cost of business or income-
producing assets is through:
– Cost recovery or depreciation: tangible assets
– Amortization: intangible assets
– Depletion: natural resources
5. 5
Nature of Property
• Property includes both realty (real property) and
personalty (personal property)
– Realty generally includes land and buildings permanently
affixed to the land
– Personalty is defined as any asset that is not realty
• Personalty includes furniture, machinery, equipment, and many
other types of assets
• Personalty (or personal property) should not be
confused with personal use property
– Personal use property is any property (realty or personalty)
that is held for personal use rather than for use in a trade or
business or an income-producing activity
• Cost recovery deductions are not allowed for personal use assets
6. 6
General Considerations
(slide 1 of 3)
• Basis in an asset is reduced by the amount of cost
recovery that is allowed and by not less than the
allowable amount
– Allowed cost recovery is cost recovery actually taken
– Allowable cost recovery is amount that could have been
taken under the applicable cost recovery method
• If no cost recovery is claimed on property
– The basis of the property must still be reduced by the
amount that should have been deducted
• i.e., The allowable cost recovery
7. 7
General Considerations
(slide 2 of 3)
• If personal use assets are converted to business
or income-producing use
– Basis for cost recovery and for loss is lower of
• Adjusted basis or
• Fair market value at time property was converted
– Losses that occurred prior to conversion can not be
recognized for tax purposes through cost recovery
8. 8
General Considerations
(slide 3 of 3)
• MACRS applies to:
– Assets used in a trade or business or for the
production of income
– Assets subject to wear and tear, obsolescence, etc.
– Assets that have a determinable useful life or
decline in value on a predictable basis
– Assets that are tangible personalty or realty
9. 9
The Big Picture - Example 2
Cost Recovery Basis for Personal Use Assets
Converted to Business Use
• Return to the facts of The Big Picture p. 8-1.
• Five years ago Dr. Payne purchased his personal residence for
$250,000.
– This year Dr. Payne found a larger home that he acquired for his
personal residence.
– Unfortunately he cannot sell his original residence and recover his
purchase price of $250,000.
• The residence was appraised at $180,000.
• Instead of continuing to try to sell the original residence, Dr.
Payne converted it to rental property.
– The basis for cost recovery of the rental property is $180,000 because
the fair market value is less than the adjusted basis.
– The $70,000 decline in value is deemed to be personal (since it
occurred while the property was held for personal use by Dr. Payne)
and therefore nondeductible.
10. 10
MACRS-Personalty
• MACRS characteristics:
MACRS Personalty .
Statutory lives: 3, 5, 7, 10 yrs 15, 20 yrs
Method: 200% DB 150% DB
Convention: Half Yr or Mid-Quarter
DB = declining balance with switch to straight-line
Straight-line depreciation may be elected
11. 11
Half-Year Convention
• General rule for personalty
• Assets treated as if placed in service (or
disposed of) in the middle of taxable year
regardless of when actually placed in service
(or disposed of)
12. 12
Example: Half-Year Convention
• Purchased and placed an asset in service on
March 15 (Tax year end is December 31)
– Treated as placed in service June 30
– Six months cost recovery in year 1 (and year
disposed of, if within recovery period)
13. 13
Mid-Quarter Convention
• Applies when more than 40% of personalty is
placed in service during last quarter of year
• Assets treated as if placed into service (or
disposed of) in the middle of the quarter in
which they were actually placed in service (or
disposed of)
14. 14
Example: Mid-Quarter Convention
• Business with 12/31 year end purchased and placed in
service the following used 5-year class assets:
• Asset 1: on 3/28 for $50,000, and
• Asset 2: on 12/28 for $100,000
• More than 40% placed in service in last quarter;
therefore, mid-quarter convention used:
• Asset 1: $50,000 × 35% (Table 8.2) = $17,500
• Asset 2: $100,000 × .05 (Table 8.2) = $5,000
16. 16
MACRS-Realty
(slide 1 of 2)
• MACRS characteristics:
MACRS Realty
Residential Rental Nonresid. Realty
Statutory lives: 27.5 yrs 31.5 yrs or 39 yrs
Method: Straight-line
Convention: Mid-month
• Residential rental real estate
– Includes property where 80% or more of gross rental
revenues are from nontransient dwelling units
• e.g., Apartment building
– Hotels, motels, and similar establishments are not
residential rental property
17. 17
MACRS-Realty
(slide 2 of 2)
• Mid-month Convention
– Property placed in service at any time during a
month is treated as if it was placed in service in the
middle of the month
– Example: Business building placed in service April
25 is treated as placed in service April 15
18. 18
Optional Straight-line Election
• May elect straight-line rather than accelerated
depreciation on personalty placed in service
during year
– Use the class life of the asset for the recovery
period
– Use half-year or mid-quarter convention as
applicable
– Election is made annually by class of property
21. 21
Additional First-Year Depreciation
(slide 1 of 2)
• Additional first-year depreciation has been
allowed for several years
– In 2012 and 2013, 50% additional first-year
depreciation was allowed
• Although the provision was written to expire
at the end of 2013, Congress may extend this
provision during 2014
22. 22
Additional First-Year Depreciation
(slide 2 of 2)
• Additional first-year depreciation allows an
additional 50% of cost recovery in year asset is
placed in service
• Qualified property includes most types of new
property other than buildings
– Property that is used but new to the taxpayer does
not qualify
23. 23
Example: Additional
First-Year Depreciation
Maple Company acquires a 5-year class asset on
April 25, 2013, for $20,000. Maple’s cost recovery
deduction for 2013 is computed as follows:
50% additional first-year
depreciation ($20,000 X .50) $10,000
MACRS cost recovery
[($20,000 - $10,000) X .20 (Table 8.1)] 2,000
Total cost recovery $12,000
24. 24
The Big Picture - Example 15
MACRS With Additional First-Year
Depreciation
25. 25
Election to Expense Assets
-Section 179 (slide 1 of 5)
• General rules
– Can elect to immediately expense up to $25,000 of
business tangible personalty placed in service in
2014
– Cannot use § 179 for most realty or production of
income property
26. 26
Election to Expense Assets
-Section 179 (slide 2 of 5)
• Section 179 general rules
– Amount expensed reduces depreciable basis
– Any elected § 179 expense is taken before
additional first-year depreciation is computed
• The base for calculating the standard MACRS
deduction is net of the § 179 expense and the additional
first-year depreciation (50% in 2013)
27. 27
Election to Expense Assets
-Section 179 (slide 3 of 5)
• Annual limitations:
– Expense limitation ($25,000 for 2014) is reduced
by amount of § 179 property placed in service
during year that exceeds $200,000 in 2014
• Example: In 2014, taxpayer placed in service
$215,000 of § 179 property.
– The § 179 expense limit is reduced to $10,000
• [$25,000 – ($215,000 – $200,000)]
28. 28
Election to Expense Assets
-Section 179 (slide 4 of 5)
• Annual limitations:
– Election to expense cannot exceed taxable income (before
§ 179) of taxpayer’s trades or businesses
• Any amount expensed under § 179 over taxable income limitation
may be carried over to subsequent year(s)
• Amount carried over still reduces basis currently
– The § 179 amount eligible for expensing in a carryforward
year is limited to the lesser of
• The statutory dollar amount ($25,000 in 2014) reduced by the cost
of § 179 property placed in service in excess of $200,000 (in 2014)
in the carryforward year, or
• The business income limitation in the carryforward year.
30. 30
Listed Property (slide 1 of 4)
• There can be substantial limits on cost
recovery of assets considered listed property
• Listed property includes the following:
– Passenger automobile
– Other property used as a means of transportation
– Property used for entertainment, recreation, or
amusement
– Computer or peripheral equipment
– Cellular telephone
31. 31
Listed Property (slide 2 of 4)
• To be considered as predominantly used for
business, business use must exceed 50%
• Use of asset for production of income is not considered
in this 50% test
• However, both business and production of income use
percentages are used to compute cost recovery
32. 32
Listed Property (slide 3 of 4)
• To be considered as predominantly used for
business (cont’d)
• If 50% test is met, then allowed to use statutory
percentage method of cost recovery with some
limitations
33. 33
Listed Property (slide 4 of 4)
• If asset is not used predominantly for business
i.e., business use does not exceed 50%
– Must use straight-line method
– If business use falls to 50% or lower after year
property is placed in service, must recapture excess
cost recovery
34. 34
Passenger Auto Cost
Recovery Limits (slide 1 of 7)
For autos placed in service in 2013, cost recovery limits are:
Year Recovery Limitation
1 $3,160
2 5,100
3 3,050
Succeeding years until
the cost is recovered 1,875
• If a passenger auto used predominantly for
business qualifies for additional first-year
depreciation
– First-year recovery limitation is increased by $8,000
• Limit increases from $3,160 to $11,160 ($3,160 + $8,000).
35. 35
Passenger Auto Cost
Recovery Limits (slide 2 of 7)
• Limits are for 100% business use
– Must reduce limits by percentage of personal use
• Limit in the first year includes any amount the
taxpayer elects to expense under § 179
36. 36
Passenger Auto Cost
Recovery Limits (slide 3 of 7)
Example: Taxpayer acquired an auto in 2013
for $30,000, used it 80% for business, and
elects not to take additional first-year
depreciation.
2013 cost recovery allowance:
($30,000 × 20%) × 80% $4,800
But deduction is limited to $3,160
× Business use % × 80%
Cost recovery allowance $2,528
37. 37
Passenger Auto Cost
Recovery Limits (slide 4 of 7)
• Limit on § 179 deduction
– For certain vehicles not subject to the statutory
dollar limits imposed on passenger automobiles
the § 179 deduction is limited to $25,000
• The limit applies to sport utility vehicles with an
unloaded GVW rating of more than 6,000 pounds and
not more than 14,000 pounds
38. 38
Passenger Auto Cost
Recovery Limits (slide 5 of 7)
• Listed property that fails the >50% business usage
test in year property is placed in service must be
recovered using the straight-line method
– Such property does not qualify for additional first-year
depreciation
• If the >50% business usage test is failed in a year
after the property is placed in service, straight-line
method must be used for remainder of property’s life
– Cost recovery of passenger auto under straight-line listed
property rule still subject to annual limits
39. 39
Passenger Auto Cost
Recovery Limits (slide 6 of 7)
• Change from predominantly business use
– If the business use percentage falls to 50% or
lower after the year the property is placed in
service, the property is subject to cost recovery
recapture
– The amount recaptured as ordinary income is the
excess cost recovery
• Excess cost recovery is the excess of the cost recovery
deductions taken in prior years using the statutory
percentage method over the amount that would have
been allowed if the straight-line method had been used
40. 40
Passenger Auto Cost
Recovery Limits (slide 7 of 7)
• Leased autos subject to inclusion amount rule
– Using IRS tables, taxpayer has gross income equal
to each lease year’s inclusion amount
– Purpose is to prevent avoidance of cost recovery
dollar limits applicable to purchased autos by
leasing autos
41. 41
Farm Property
(slide 1 of 2)
• Generally, for farm assets use:
– MACRS 150% declining-balance method for
personalty
• MACRS straight-line method is required for any tree or
vine bearing fruits or nuts
– Straight line method over the normal periods (27.5
years and 39 years) for real property
– If the election is made to not have the uniform
capitalization rules apply, alternative depreciation
system (ADS) straight-line method must be used
43. 43
Leasehold Improvement Property
(slide 1 of 2)
• If lessor is owner of leasehold improvement property,
depreciation is calculated as follows:
– Real Property – Use straight-line method over 27.5 or 39
year statutory recovery periods
– Tangible personal property – Use the shorter MACRS lives
and accelerated methods
• When these improvements are disposed of or
abandoned by the lessor due to lease termination
– Property is treated as disposed of by the lessor
– A loss can be taken for the unrecovered basis
44. 44
Leasehold Improvement Property
(slide 2 of 2)
• If lessee is owner of leasehold improvement
property
– Costs of leasehold improvements are recovered in
accordance with the general cost recovery rules
• Cost recovery period is determined without regard to
the lease term
– Any unrecovered basis in the leasehold
improvement property not retained by the lessee is
deducted in the year the lease is terminated
45. 45
Alternative Depreciation
System (ADS) (slide 1 of 2)
• ADS is an alternative depreciation system that
is used in calculating depreciation for:
– Alternative minimum tax (AMT)
– Assets used predominantly outside the U.S.
– Property owned by the taxpayer and leased to tax
exempt entities
– Earnings and profits
46. 46
Alternative Depreciation
System (ADS) (slide 2 of 2)
• Generally, use straight-line recovery without
regard to salvage value
– For AMT, 150% declining balance is allowed for
personalty
– Half-year, mid-quarter, and mid-month
conventions still apply
47. 47
Amortization (slide 1 of 2)
• Can claim amortization deduction on § 197
intangibles
– Use straight-line recovery over 15 years (180
months) beginning in month intangible is acquired
• Section 197 intangibles include acquired
goodwill, going-concern value, trademarks,
trade names, etc.
48. 48
Amortization (slide 2 of 2)
• Startup expenditures are also partially amortizable
under § 195
– Treatment is available only by election
• Allows the taxpayer to deduct the lesser of:
– The amount of startup expenditures, or
– $5,000, reduced by the amount startup expenditures exceed
$50,000
– Any amounts not deducted may be amortized ratably over
180-months beginning in month trade or business begins
49. 49
Depletion
(slide 1 of 4)
• Two methods of natural resource depletion
– Cost: determined by using the adjusted basis of the
resource and allocating over the recoverable units
– Percentage: determined using percentage provided
in Code and multiplying by gross income from
resource sales
50. 50
Depletion
(slide 2 of 4)
• Cost depletion
– Depletion is computed on a per unit basis
– Per unit amount is determined by dividing the
basis of the resource by the estimated recoverable
units of resource
• Number of units sold in year × per unit depletion =
depletion for year
– Total depletion can not exceed total cost of the
property
51. 51
Depletion
(slide 3 of 4)
• Percentage depletion
– Depletion is computed by using the statutory
percentage rate for the type of resource
– Rate is applied to the gross income from the
property
52. 52
Depletion
(slide 4 of 4)
• Percentage depletion
– Percentage depletion cannot exceed 50% of the
taxable income (before depletion) from the
property
– Percentage depletion reduces basis in property
– However, total percentage depletion may exceed
the total cost of the property
• Example: Property with zero basis but still generating
income
53. 53
Intangible Drilling Costs
(IDC)
• Intangible drilling costs include
– Costs for making the property ready for drilling
– Costs of drilling the hole
• Treatment of IDC
– Expense in the year incurred, or
– Capitalize and write off through depletion
• It is generally advantageous to write off IDC
immediately
54. 54
The Big Picture - Example 44
Tax Planning
• Return to the facts of The Big Picture p. 8-1.
• In January 2013, Dr. Payne purchased residential rental property for
$170,000 ($20,000 allocated to the land, $150,000 to the building).
– He made a down payment of $25,000 and assumed the seller’s mortgage for
the balance.
• Since the property was already occupied, Dr. Payne continued to receive
rent of $1,200 per month from the tenant.
• Assume any losses generated by the property are currently deductible and
he is in the 28% tax bracket.
• During 2014, Dr. Payne’s expenses were as follows:
Interest $10,000
Taxes 800
Insurance 1,000
Repairs and maintenance 2,200
Depreciation ($150,000 X .03636) 5,454
Total $19,454
55. 55
The Big Picture - Example 44
Tax Planning
• The deductible loss from the rental property is computed as follows:
Rent income ($1,200 X 12 months) $ 14,400
Less expenses (see above) (19,454)
Net loss ($ 5,054)
• But what is Dr. Payne’s overall position for the year when the tax benefit
of the loss is taken into account?
• Considering just the cash intake and outlay, it is summarized below:
Intake—
Rent income $14,400
Tax savings [28% (income tax bracket) X $5,054
(loss from the property)] 1,415
Net Intake $ 15,815
Outlay—
Mortgage payments ($1,000 X 12 months) 12,000
Repairs and maintenance 2,200
Net Outlay (14,200)
Net cash benefit $ 1,615
56. 56
Refocus On The Big Picture
• Evidently, Dr. Payne’s accounting system uses MACRS
because $91,298 of depreciation is the correct amount.
– The computers and peripheral equipment are 5-year property.
– The furniture and fixtures and the dental equip. are 7-year property.
• Based on the IRS tables, the following percentages are used to
calculate first year depreciation expense:
5-year property 20.00%
7-year property 14.29%
• Dr. Payne will also be able to deduct depreciation on the house
he converted from personal use to rental use and on the rental
house that he purchased.