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DepreciationWorks^® F.A.Q.

Frequently Asked Questions

1. Why a book depreciation program?

Many of us are responsible for computing depreciation expense and for recording it to the general ledger, while at the same time are not responsible for maintaining income tax basis depreciation schedules.

Other depreciation programs are available that, with an exception or two, always include tax depreciation methods. Such programs are consequently more complex, including what may to you be the unnecessary overhead (and headache) of tax methods.

Depreciation modules that may be available in your integrated accounting software package include tax methods that you may not need or want. Those modules may not be free, may not be well documented, may not be worth the investment of the time necessary to learn how to use, and may have limited and hard to generate reports.

You may want income tax methods so as to have total control, or autonomy, in the fixed asset area. Yet your outside CPA does your tax return, and does it with software that includes tax depreciation functionality. DepreciationWorks includes a useful report that sorts your fixed assets by property type, making it easy and efficient for your outside CPA to continue to take care of the income tax aspects. Your CPA gets the data needed to prepare a quality return, and you get the advantage of maintaining control over your fixed asset database and the specifics that are of utmost importance to you.

DepreciationWorks does not calculate depreciation for income tax purposes. Other depreciation programs do and are more expensive, both initially and for every year you own one. For many, owning an income tax depreciation enabled fixed asset program is an expensive redundancy because income tax preparation software also owned does income tax depreciation calculations.

DepreciationWorks includes a Property Type field that can be assigned to each asset. Income tax methods are primarily a function of a property's class type. Property types in DepreciationWorks can be set up to equate to class types. DepreciationWorks includes reporting on assets placed in service or retired by property type for each month of a company's fiscal year. Property type totals by month in service can be entered into income tax preparation software in order to minimize duplicative data entry.

2. Why not use tax methods for my books?

Under Generally Accepted Accounting Principles (GAAP), depreciation is the allocation of the cost of fixed assets (less salvage value, if any) to expense over their estimated useful lives in a systematic and rational manner. The goal of depreciation methods is to rationally and consistently match revenue and expense by allocating the cost of fixed assets over their useful lives. Depreciation methods that provide rational, systematic, and consistent allocations of fixed asset costs to expense over their estimated useful lives are GAAP, or book, depreciation methods.

Depreciation for the purpose of determining federal taxable income is not depreciation per GAAP. Tax laws may or may not be consistent from year to year. Tax depreciation methods presently ignore salvage regardless of whether or not salvage is material with respect to a fixed asset's cost. Useful lives determined by statute do not give consideration to how long a particular asset may be useful to a particular company.

For accounting purposes, companies should not use tax depreciation methods, IRS guidelines, or government regulations to determine book depreciation. Book depreciation should be determined using GAAP. And the new IRC Sec. 179 amount could now be viewed as material for those having thought that using federal for book depreciation was not materially different from GAAP.

3. Why not maintain my fixed assets in Microsoft Access ® or Excel ®?

Time and effort is involved in creating an adequate tool in those applications. Even more time and effort is involved in documenting your home grown tool's use and features. Your next promotion may leave your successor with a big learning curve. And how does your present employer obtain support for your tool if you have moved on? There is also the issue of whether or not your logic and macros will survive future changes in subsequent versions of Access or Excel.

Excel ® and Access ® solutions available for purchase are difficult for a developer to support through version changes, changes over which a developer has no control. And writing an application "within an application" means less flexibility, confinement, and some loss of creative autonomy.

Note that if you presently maintain your fixed assets in Excel, DepreciationWorks can import them. And once your asset information is in DepreciationWorks, you can also easily export that information to Excel should you have unique or special requirements.

4. Can DepreciationWorks help ensure that depreciation policies are followed?

A company should establish a depreciation policy and adhere to it. A depreciation policy includes a part year convention, a choice of a depreciation method for each of the various types of fixed assets owned and acquired, an estimate of the useful life of each of the property types, and guidance on determining the estimated salvage value associated with each of the property types. A depreciation policy also should state a minimum capitalization amount.

DepreciationWorks facilitates the maintenance of the company's depreciation policy. A part year convention applies to the company. A particular depreciation method can be set as the default method for any particular property type. A default useful life can be set for any particular property type, and each property type can be assigned an estimated salvage value as a percentage to be applied to that type of property's cost. Once those associations are made, when you add an asset and select a property type, the default salvage, method, and life are entered for you, as well as the business property tax category.

A minimum capitalization amount is a threshold value under which a particular item is recognized as a period cost instead of as a capital expenditure. It is doubtful that an item is long lived if its cost is less than the minimum capitalization amount, and in that case it is expensed instead of carried on the books as a fixed asset subject to depreciation. Note that if an asset is comprised of several amounts that singly are under the threshold amount, you should capitalize the asset if the sum of those separate amounts exceeds the threshold.

5. Why an annual fee for support?

Annual renewal fees help keep software relevant to an ever changing business and technological community. They help ensure that resources are available to maintain and improve DepreciationWorks. Annual renewal fees express a commitment by the user and by the developer to the data maintained in DepreciationWorks by a DepreciationWorks user.

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DepreciationWorks is a registered trademark of Charles Wood. All other products mentioned are registered trademarks or trademarks of their respective companies.