Expense vs. Depreciable Asset


S

studylogic06

What are some of your thoughts or general guidelines that you employ to
settle something like the following...

If in business, and I spend $2.95 on a cheap screwdriver, I'm going to
expense it even if the thing ends up lasting 10 yrs. If on the other
hand I buy a $50K Bobcat, then of coure it's an asset that I will have
to depreciate over 3 or 5 years or so. The extreme cases are easy. But
what about in the middle? What about an $80 hammer or a $300 power
tool?

Life-expectancy is the main "official" criterion... but no CPA is going
to demand his client expense his favorite $18 tape measure that he
expects to last 10 yrs in his car glove-box. So cost is sort of an
unofficial secondary criterion.

What are your cut-off points for this secondary criterion? Pretend I
come into your office with my tool box. All the tools are expected to
last 7 or 10 years. But some cost $5, some cost $500, and some others
are in between. However arbitrary, what are your own guidelines?

Thanks.
 
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S

Steve

What are some of your thoughts or general guidelines that you employ to
settle something like the following...

If in business, and I spend $2.95 on a cheap screwdriver, I'm going to
expense it even if the thing ends up lasting 10 yrs. If on the other
hand I buy a $50K Bobcat, then of coure it's an asset that I will have
to depreciate over 3 or 5 years or so. The extreme cases are easy. But
what about in the middle? What about an $80 hammer or a $300 power
tool?

Life-expectancy is the main "official" criterion... but no CPA is going
to demand his client expense his favorite $18 tape measure that he
expects to last 10 yrs in his car glove-box. So cost is sort of an
unofficial secondary criterion.

What are your cut-off points for this secondary criterion? Pretend I
come into your office with my tool box. All the tools are expected to
last 7 or 10 years. But some cost $5, some cost $500, and some others
are in between. However arbitrary, what are your own guidelines?

Thanks.
It depends on the size of the business and the amount of tool expenditures
but it would not be unreasonable for a small business to have a fixed asset
capitalization rate cutoff of $400. or $500. This would end up expensing
most tool purchases and not placing them on a fixed asset depreciation
system. There are some tax guidelines and you would have to stick with one
policy consistently for all tool purchases.




























































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P

Paul Thomas, CPA

What are some of your thoughts or general guidelines that you employ to
settle something like the following...

If in business, and I spend $2.95 on a cheap screwdriver, I'm going to
expense it even if the thing ends up lasting 10 yrs. If on the other
hand I buy a $50K Bobcat, then of coure it's an asset that I will have
to depreciate over 3 or 5 years or so. The extreme cases are easy. But
what about in the middle? What about an $80 hammer or a $300 power
tool?

Life-expectancy is the main "official" criterion... but no CPA is going
to demand his client expense his favorite $18 tape measure that he
expects to last 10 yrs in his car glove-box. So cost is sort of an
unofficial secondary criterion.

What are your cut-off points for this secondary criterion? Pretend I
come into your office with my tool box. All the tools are expected to
last 7 or 10 years. But some cost $5, some cost $500, and some others
are in between. However arbitrary, what are your own guidelines?


It really depends on the size of the business, how those small items are
purchased (individually or at once), and what the business owner is trying
to accomplish. I hear-tell that the utility companies capitalize and
depreciate $3 trash cans. Then I hear about some businesses that will
expense out anything less than $1000. Shit, my whole first office (sans the
computer) cost less than a grand to furnish (pretty sure it was "used"
everything).

And if you are trying to get the balance sheet to look like you actually
~own~ something, and that it might impress the lender (and actually look
normal) to see furniture, fixtures, equipment, machinery, etc on the books
instead of a big fat $0 where fixed assets reside.
 
S

studylogic06

Correction:
Life-expectancy is the main "official" criterion... but no CPA is going
to demand his client ***depreciate*** his favorite $18 tape measure that he
expects to last 10 yrs in his car glove-box.
But seems you guys knew what I was getting at anyways... thanks for the
input.
 
B

~^ beancounter ~^

it also depends on if/how the business wants its income
statement impacted.....one can shelter taxable income
from the irs by expensing instead of capitalzing items
for tax purposes....if ya get my drift......some profitable
business love to expense big ticket items.....
 
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T

TKnTexas

I have only worked for one company that actually had detailed policy on
this, one of the national restaurant chains. If they life of the asset
was 3 years or older and the purchase price was $500 or higher, it met
that criteria for depreciation. When we merged with another chain they
had a $1000 cutoff. In the consolidation of policies we compromised
with the $750. Three were some items there were never capitalized,
microwaves being one that I remember. And there were a couple items
always capitalized, refrigeration compressors. Compressors didn't
always hit the $750 amount but they always extend the life of the
asset.
TK
 
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B

~^ beancounter ~^

i have a client with such excess earnings, they love to expense
and keep the shop @ "state of the art" levels .... expensing a
lot to "repairs and maintaince" ......
 

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