Book vs Accumulated Depreciation

USA Discussion in 'Technical Queries' started by Lauren W, Feb 12, 2018.

  1. Lauren W

    Lauren W

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    Location:
    California, USA
    I've just started a new job with a small company going through a major transition - a corporate buyout and complete overhaul/cleanup of their accounting. Previously the now-bought-out owner had been doing all the books and the new owners have brought me in to take over. I should also mention the previous owner had no accounting background, just figured it out as she went, so there is the possibility she unintentionally did some things wrong I'll need to correct. I have a BA and a few years experience after school, but there are definitely some tasks I've never tackled. So thank you in advance for helping me not look like an idiot and learn FAST to catch up what I need to know.

    I'm working with their CPA on a cleanup of their chart of accounts which is a bit of a mess. Just sloppy and excessive. I'm trying to narrow down what gets used, how, and what we want to continue forward with or change. I've had one come up that I have no experience with which is under fixed assets they have an account for both accumulated depreciation and book depreciation. Accumulated depreciation has entries every year as expected, but book depreciation only has one in entry in 2011 and one out in 2012. They are:

    2011:
    Book Depretiation 29,000
    Accumulated Depr 29,000

    2012:
    Retained Earning 29,000
    Office 5
    Retained Earnings 5
    Book Depreciation 29,000

    Can anyone explain what they might have been doing here? Am I right in thinking this is odd, especially as it's only been done once in 20+ years of business? Would it be reasonable to make the book depr account inactive if this is just a weird way they did something once?
     
    Lauren W, Feb 12, 2018
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  2. Lauren W

    Steve-LevelUp VIP Member

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    This is definitely a complex project, but there are a few things you can focus on. First, the buyers are more interested in EBITDA earnings. So, do your best produce a set of accurate earnings before interest, taxes, depreciation, and amortization.

    Next, for every balance sheet account, build out a schedule of all activity in that account. That will help give you a perspective on activity, since balance sheet accounts are continual.

    3rd, upon an acquisition, all fixed assets are revalued at fair market value. So, you will need to set the fixed assets at a fair market value with any remaining variance going to goodwill. Most would hire a valuation firm (can be $20k to $40k) for a small-medium company. However, if you are just a small firm, a reasonable research exercise and saving your backup regarding your valuation choices might be sufficient (but auditors might not like that option)

    I hope that helps to point things in the right direction.
     
    Steve-LevelUp, Feb 15, 2018
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