USA Changing Depreciation Policy?

[Lauren W]

Hi Guys, thanks for the help on past questions as I continue clean up from the past "accountant" at my company.

The previous gall included EVERYTHING as assets on the depreciation schedule, including things like a $100 phone headset, or a cell phone for $145. I'm changing their policy going forward that anything under $1000.00 is expensed immediately, and anything over gets depreciated on the proper schedule.

For assets that started under that $1000 threshold that they have been depreciating, am I able to go ahead and apply that new policy and depreciate them fully now, or do I need to continue depreciating anything they started to do on the old policy, and only apply the policy change to new purchases?

Second question around assets: during their partnership buy out last year, a number of assets were included with the purchase price and went with the owner that was bought out. What's the appropriate journal entry to write off those items from their balance sheet? I know I'll use their book value at the date of the purchase agreement.

Thank you!!

 

[Steve-LevelUp]

This is definitely not a 'correct' answer, as this may not follow documented accounting principles, but I would first determine if such a historical reclassification would be material. How much does all the $145, $100, etc actually add up to. Would making this change materially change the financial statements or would it cause comparisons between periods to be misleading. If it is not material, then I would just ignore the history and change the policy going forward. There would be no need for an extensive amount of work for something that has an immaterial impact.

 

[kirby]

1. Changing the policy away from minor amounts is a good move. Otherwise lots of time is wasted doing bean counting.
2. You can go ahead and change the policy and so expense the minor items but there are 2 caveats:
a. check your state's business property tax law first. For Calif, the tax is assessed on business personal property used in the business. So if former accountant used the fixed asset list as support for the business personal property tax listing the County will see a decrease when you do your report using your method. Can be explained but be prepared.
b. same issue for your tax folks who may have used the old method listing and now things will disappear using your method. So just discuss with them first.
For second question, you know the credit side of the entry (asset removal) but you'll need to read the exit agreement or discuss with the remaining owner(s) to know what to put for the debit side.