Depreciation

[Louis]

A client personally owns three fishing boats. These boats are not on the company books as assets but they want to put a monthly depreciation value through the books! I said not possible, they've asked me to come up with a solution!
Any ideas?

 

[kirby]

Just have the company buy the boats. Meanwhile find another job. These guys are goofy at best crooked at worst

 

[Louis]

Happy in my job... And these guys are not goofy and certainly not crooked, just ignorant! Thanks for the 'first' part of your reply.

 

[Tim8705]

If they are not accountants then I would recommend just explaining to them that if they do not own the assets then they can not legally receive the benefits of depreciation.

Having the company 'buy' the boats may not be a reasonable solution either. I would advise against this type of practice if the fishing boats have no relation to his business. For instance, if he owns a restauarant and is wanting to gain the benefit of depreciation on his personal assets through his business, it would not be acceptable to transfer the title of the boats to the company...

If he uses the boats for a business purpose, then I agree with Kirby's solution.

 

[Counterofbeans]

Okay, let's make this simple...

WHY do they want the depreciation expense in the G/L?

There is no solution to this problem. You can't record depreciation expense without the corresponding assets on the G/L. It simply won't work. You'd have a credit showing up in the asset section of the balance sheet, suggesting a liability of some sorts.

Unless, of course, one wants to "lie" and record the credit directly to some equity account (i.e. retained earnings), but that's just bogus (see crooked comment above)...

 

[Mariz]

A business is an entity, therefore it is separate from personal transactions. One cannot record a depreciation expense of 3 personal boats even though it's his own company, unless the company buy the 3 personal boats as 3 company boats using the company's cash or by borrowing from a bank. It is also important that buying 3 boats are necessary for business operations.