HazeEastwood
offlineMember
I had an argument with my boss yesterday so I wanted to know you guys opinion. If you worked at a company and you added a AC unit to the building. What would you classify it as? A Building Improvement or Equipment and how many years would you depreciate it?
HazeEastwood
offlineMember
I classified it as building improvements and depreciated it over 40 years because the company guidance said for building improvements the max is 40 years. My logic was the life is 39 years for tax purposes so I guess 40 makes sense. My boss said that the AC unit is equipment which to me made no sense because it is attached to and and runs through the building. The group controller said he understood why I used 40 years but realistically it wouldn't last that long which I can agree with but the notion that I was wrong because I should consider it equipment was completely wrong to me.
The group controller said the longest he would depreciate a building improvement would be a roof which he would depreciate over 20 years. My first thought was then why have the company guidance set at a max of 40 years. They are saying I should depreciate it over 10. Says who? The company policy doesn't say that. It really made me mad
yankeeaccountant
offlineMember
I agree with Allyson and Rebecca: 15 years for building improvements( can't take with you) or 5 years equipment (could be 7 years...see publication 946, or the IRS Tax code book, the book has very specific definitions of each asset class). I don't think it is eligible for SEC 179 though..........
yankeeaccountant
offlineMember
@haze
I am not a tax person, so I usually think of book, however at our firm we would do compilations on Income Tax basis so our depreciation schedules would normally follow tax. Any changes on depreciation would be made up on the tax return and adjusted to book.
In terms of the Sec 179, I came across that in my search so I included that info.
Does that make sense?
HazeEastwood
offlineMember
yankeeaccountant, I understand what you're saying. I also understand the the IRS guidance for building equipment computers etc but when I think back to tax, I don't recall guidance for building improvements, just leasehold improvements so I just grouped it with non residential buildings. I could be wrong. The book life is usually based on a company's policy.
yankeeaccountant
offlineMember
@haze,
ok, I slowed down to read your whole question. Sorry. Yes, I gave you the 15 year based on a lease, I assumed you didn't own the building (most of my clients were restaurant owners, so that was typical for them).
I think using 39 years (40) is the way to go. When the tax return is filed for 2011, then there can be a decision to change or adjust the life of the improvement at that time.
Have a great day!
yankeeaccountant
offlineMember
Haze,
I keep missing your posts while I am posting! You are right, I am studying REG now (ugh) and there isn't anything on building improvements per se. I think FAR goes into it in terms of how it is entered in the general ledger. I think I remember two ways: one as a separate entry dr. building improvement cr cash, or the other was to dr. accum depreciation cr cash. I think the example in Far was referring to a new roof. I could be thinking of Intermediate Acctg.....memory stinks right now.
Most of my clients didn't have a PPE policy, so I always had to go to IRS tax code to the partner. So, at least you have something to go back to.
CalCPASoon
offlineMember
This is from the hud.gov website:
The cost of buildings should include not
only the cost of the structure itself but also
the costs of all permanent equipment and
fixtures necessary for the intended use of
the structure, such as boilers, furnaces, air
conditioners, elevators, permanent floor
covering, wiring, and lighting fixtures
Cost Basis When Assets Are Replaced or Traded-In:
When an entity acquires a new asset and disposes of an old
asset of like kind and PHAs are able to identify the cost and
accumulated depreciation associated
with the old asset, PHAs should eliminate
the cost of the old asset from the
accounts and record a gain or loss on its
disposal. Then PHAs can debit the cost
of the new asset to the proper asset
account. Assume that the entity had an
air conditioner that originally cost
$40,000 and had recorded accumulated
depreciation in the amount of $35,000.
If the entity could not determine the
exact cost, the entity should estimate the cost and the depreciation
taken to date. Assume the replacement unit had a cost of
$70,000. Exhibit 2 illustrates the entries required to account
for this transaction if the PHA uses Enterprise Fund accounting
http://www.hud.gov/offices/reac/pdf/gaapflyer2.pdf
At first I thought it would be equipment too, but after reading this i see now that it should be classified as part of the building.
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