Queries regarding Depreciation Schedule

Replies to This Discussion

Permalink Reply by Robert Donohue on December 21, 2009 at 5:17pm

In the United States the depreciable life is pre-set by administrative fiat. All real property is depreciable according to The Modified Accelerated Cost Recovery System (MACRS) over either 39 years (non-residential property) or 27.5 years (residential property).
Personal property is recoverable according to its Class Life (e.g. 3,5, or 7 years). The Class Lives can be recovered via Google.
Upon the transfer of title to property the Depreciation schedules begin anew, regardless of the historical age of the asset.
The economic life of the asset begins when it is placed into service, or when it is made available for productive service, whichever is earlier.

▶ Reply to This

Permalink Reply by Raj Jain on December 22, 2009 at 3:38am

Absolutely right Sir, Thanx for ur reply.....In US, companies also provides information related to depreciation schedule...for example ..life of d assets.... but in India ,,,,Analyst have to estimate the life of d historical/new assets while preparing schedule for the modeling purpose..... So I am looking for the logics behind these estimation for Financial Modeling of the company...

Thanx & Regards,
Raj

▶ Reply to This

Permalink Reply by Robert Donohue on December 22, 2009 at 4:03am

Prior to 1986, the Unite States published no guidelines re the economic life of a depreciable asset. Investors "estimated" on their own - usually the shorter life the better. Conflicts with the taxing authorities were sometimes settled by obtaining a professional appraisal.
I do not envy you your task.

B.D.

▶ Reply to This

Permalink Reply by neelkanth mehta on December 23, 2009 at 5:16am

if you are looking for formula, here it is:

1. Historical cost of the asset (less) acc. depreciation (less) salvage value, if any [into] rate of depreciation (WDV)/ yearly depreciation (SLM)

2. Difference between purchase price of new asset & it's salvage value, if any {divided by} yearly depreciation (in case of SLM). In case of WDV it's be complicated, you need to prepare depreciation schedule.

3. Days in inventories = (avg inventory/COGS) [into] 365
avg. inventory = (opening + closing inventory)/2

I hope this is what you were looking for.

Cheers.

▶ Reply to This

Permalink Reply by Raj Jain on December 24, 2009 at 1:49am

Hi...

Thanx Neil, thanx for reply.....

Kindly find the attachment. This is the method I employed for calculation of estimated life.
Your views will be highly appreciated.

RajEstimated Life Calculation.xls

▶ Reply to This

Permalink Reply by neelkanth mehta on December 29, 2009 at 4:21am

Thanks Raj,

I'll get back to you shortly, with this.

BTW, is this all the information I have? Please give me more details, if there is.

Neil

▶ Reply to This

Permalink Reply by Raj Jain on December 29, 2009 at 11:46pm

Heeyyy Neil...

Actually only this data I m using for the calculation of Estimated Life of Historical & New Assets while designing financial model & here I m only showing my Logic for the calculation....
If you have better Logic or method...Plz share.....

I really appreciate your interest and suggestions....

Thanx & Regards
Raj

▶ Reply to This

Permalink Reply by neelkanth mehta on January 2, 2010 at 11:20am

Dear Raj,

Having discussed, about your depreciation schedule with my colleagues, there was no doubt but one.

There shouldn't be a vast difference between the rates for historical and new assets. I believe both should be more or less equal. While I say that, I assume that both historical and new assets are of same nature (e.g., computers, equipments and so on...); and I assume the estimates haven't changed over the period.

Having said that, I can't think of any mathematical formula to estimate life of new asset. The estimates must be given in GAAP guidelines (e.g., three years in case of computers).

I hope my feedback helps.

Thanks,
Neil.

▶ Reply to This

Permalink Reply by Raj Jain on January 5, 2010 at 12:56am

Thank You so much ...Neil... for adding me as frnd nd taking so much trouble for me....
Feel free if u ever need any help.....

Regards,
Jeet

▶ Reply to This

Permalink Reply by Werner Reisacher on February 7, 2010 at 11:41am

The purpose of depreciating assets is to allocated the cost of Fixed Assets to the periods in which these assets generate economic benefits. (sales/income) (FASB Accrual Accounting Method)
Consequently, you have following considerations to take into account when estimating the economic life of an assets:
- Usage method: - Fixed Asses that are subject to wear and tear such as Construction Equipments, Trucks, are depreciation based on the usage method. (number of miles driven, number of hours in use, tons of freight lifted etc.)
- Timing method: - Assets that must be replaced after a certain time, irrespective of their physical conditions such as outdated computer equipment, executive cars, executive office equipment, technically obsolete communication equipment are depreciated over an estimated life span of such equipment.
In the case of WIP. the decision simple. You start depreciating comleted WIP when that asset can be considered as an economic value to the company and is being put into production to generate economic benefits.
Werner Reisacher

▶ Reply to This