Provision for depreciation refers to the allocation of the cost of a tangible fixed asset over its useful life, ensuring accurate representation of asset value in financial statements and compliance with accounting and tax regulations.
An amount set aside out of profits in the accounts of an organization for a known liability, even though the specific amount might not be known, or for the diminution in value of an asset.
The Recapture Rule requires the repayment of tax benefits like depreciation and investment tax credits claimed earlier if specific conditions are not met in subsequent years.
The term 'recovery' in various fields refers to the period when economic activity picks up after a downturn, absorption of costs or collections in finance, and rising prices in investment markets.
The number of years over which the cost of an asset may be depreciated.
Replacement Cost Accounting is an accounting method allowing for additional depreciation on a part of the difference between the original cost and the current replacement cost of a depreciable asset.
The period over which a product or fixed asset will need to be replaced owing to obsolescence.
Reserve for Depreciation, also known as Accumulated Depreciation, is an accounting term used to describe the total amount of depreciation that has been expensed against an asset's value over time. It reflects the reduction in an asset’s book value due to wear and tear, age, or obsolescence.
Residential rental property refers to rental units utilized for dwelling purposes, excluding transient lodging like hotels or motels. To qualify as residential for income tax purposes, at least 80% of a building’s income should come from dwelling units. This type of property is eligible for a 27½-year life for tax depreciation purposes, compared to a 39-year life for nonresidential property.
A method of determining the depreciation charge on a fixed asset against profits for an accounting period by revaluing the asset each year and writing off the fall in value.
The net residual value of an asset at the end of its useful life, when it is no longer suitable for its original use. Fixed assets, inventory, or waste arising from a production process can all have a salvage value.
Salvage value, also known as scrap value, is the estimated residual amount that an asset is expected to realize when it is sold at the end of its useful life.
Scrap value, also referred to as salvage value, is the estimated residual value of an asset at the end of its useful life. This is the amount the owner expects to obtain from the sale of the asset following its complete depreciation.
Section 167 of the Internal Revenue Code details the rules and methodology regarding depreciation deductions for assets used in a trade or business or held for the production of income.
A section of the Internal Revenue Code of 1986 (IRC) that allows the cost of capital improvements for qualifying personal property to be deducted in the year of acquisition rather than being recovered over time through depreciation.
Service potential refers to the extent to which an asset helps an entity achieve its objectives, especially in non-cash generating contexts. This term is commonly used in the public sector and not-for-profit organizations.
A method of calculating the amount by which a fixed asset is to be depreciated in an accounting period, using a constant annual depreciation charge against profits year by year.
The straight-line method of depreciation is a calculation method whereby an equal amount of an asset's cost is allocated as an expense for each year of the asset's useful life. This method is commonly used for accounting and tax purposes.
The sum-of-the-digits method is a technique for calculating the depreciation of a fixed asset, where the majority of the depreciation is recognized in the early years of the asset's life.
The Sum-of-the-Years'-Digits (SYD) method is an accelerated depreciation technique that allows for higher depreciation expenses in the earlier years of an asset's life and lower expenses as the asset ages.
Tangible assets are physical items that hold value and can be seen and touched, used by businesses to generate revenue.
A tax-deductible expense can be used to reduce taxable income, resulting in a lower tax liability. Common examples include interest on housing, ad valorem taxes, depreciation, repairs, maintenance, utilities, and other ordinary and necessary business expenses.
A transaction is an external or internal event that causes a change affecting the operations or finances of an organization.
The unamortized cost is the historical cost of a fixed asset minus the total depreciation or amortization applied to it up to a specified date. It represents the current book value of the asset in financial accounting.
Uniform Capitalization Rules (UNICAP) are a method of valuing inventory for tax purposes, requiring the capitalization of direct costs and an allocable portion of indirect costs related to production or resale activities. These costs must be included in the basis of property produced or in inventory costs and are then recoverable through depreciation, amortization, or as cost of goods sold.
The Units of Production Method is a depreciation approach in which expense is based on the real usage of an asset, typically used for machinery and production equipment. This method relates an asset’s depreciation expense to the total production output or usage during its useful life.
The useful economic life, or useful life, is the period for which the present owner of an asset will derive economic benefits from its use.
Useful life refers to the period of time over which a depreciable asset is expected to provide a competitive return or service. The Modified Accelerated Cost Recovery System (MACRS) allows depreciable lives for tax deduction purposes that may differ from the useful life of the property.
The elements of an organization's indirect manufacturing costs that vary in total in proportion to changes in the level of production or sales.
The Waste Management scandal was an egregious example of accounting fraud in which top executives manipulated financial statements to meet earnings targets. Spanning over five years from 1992 to 1997, this deceitful practice was eventually uncovered, resulting in significant financial restatements and legal consequences for both the company and its auditors.
A wasting asset is an asset that has a finite life span and steadily declines in value over time, typically due to physical wear and tear or obsolescence.
Wear and tear refers to the reduction in value of a fixed asset as a result of its regular usage and the inevitable damage it sustains over its working life. It is one of the primary reasons behind asset depreciation.
The Writing-Down Allowance (WDA) is a form of tax relief that allows businesses to depreciate certain types of assets to reduce taxable profits.
Writing-down allowance (WDA) is a type of capital allowance available to UK traders, allowing the reduction in value of certain assets over time for tax purposes.
Written-Down Value (WDV) refers to the depreciated value of an asset after accounting for depreciation or amortization up to a specific date. It represents the current book value of an asset in the financial statements.
