I am starting a rent-to-own business. As I maintain ownership of the merchandise until all customer's payments are made, the merchandise is recorded as a balance sheet asset. The merchandise is depreciated over time using the straight line method with no salvage value. However, there is some confusion regarding the rate of depreciation. For example, my CPA says for a "qualified rent-to-own" property, the depreciation length should be 3 years.
However, I checked an SEC filing of a major rent-to own company (stock symbol: FPAY), and their depreciation term is the length of the lease contract, which is 12 months. This seems to make more sense to me since the length of the "useful life" of the merchandise would be the length of the lease. In their 10Q filing, I found the following explanation...
"...depreciates leased merchandise using the straight line method over the applicable agreement period for a consumer to acquire ownership generally twelve months with no salvage value."
Here is the link to the about quote.
http://biz.yahoo.com/e/150814/fpay10-q.html
Since they are a public company with SEC oversight, I would imagine that their depreciation method is correct. Can anyone provide any clarity on this matter, and solve this disagreement between my CPA and myself?
However, I checked an SEC filing of a major rent-to own company (stock symbol: FPAY), and their depreciation term is the length of the lease contract, which is 12 months. This seems to make more sense to me since the length of the "useful life" of the merchandise would be the length of the lease. In their 10Q filing, I found the following explanation...
"...depreciates leased merchandise using the straight line method over the applicable agreement period for a consumer to acquire ownership generally twelve months with no salvage value."
Here is the link to the about quote.
http://biz.yahoo.com/e/150814/fpay10-q.html
Since they are a public company with SEC oversight, I would imagine that their depreciation method is correct. Can anyone provide any clarity on this matter, and solve this disagreement between my CPA and myself?