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IT Debate: IT & depreciation periods

By itdebate ·
Gartner argues that the depreciation policy of IT assets should be more closely linked to business practice?as opposed to the standard depreciate periods favored by most accountants. Should the depreciation period be changed due to the shortened lifespan of hardware and software? What kind of depreciation rules do you follow in your shop? Would your accounting department accept this argument or would you expect a battle if you argued to shorten depreciation periods for IT-related items?
You can read the related Gartner article, which will be posted 3:00 AM Wednesday, at http://www.techrepublic.com/article.jhtml?id=r00620001101ggp01.htm

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IT Debate: IT & depreciation periods

by plantogo2000 In reply to IT Debate: IT & depreciat ...

This complex situation is such because each department executive owns IT assets and uses them as tools for his/her department to perform responsibilities that are measured by the boss.
Consider this. The Engineering manager wants to upgrade software to better provide the business with a knowledge management system and the IT manager is in complete support of this and the managers of Marketing and Finance are against it because of the effect to the balance sheet and it would mean that the marketing manager can?t get the new equipment he needs to run his department. The compromise (bad in any business) is to give each a little of what they want. Unless the president is a true leader and sees the value of the situation, the department heads fight for dominance.
This might not be the way we would like to see it happen. The point here is that there is no steadfast and solid rule as to how to handle IT assets be that they are by the existing rules or any new rules. They need to be flexible and change according to the business climate to take advantage of each situation. One formula in one business may not be to the advantage of another business. As long as the accounting satisfies the IRS requirement any method is valid for any business.

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IT Debate: IT & depreciation periods

by itdebate In reply to IT Debate: IT & depreciat ...

Your answer was featured in our IT Debate TechMail. To receive your free subscription to the IT Debate TechMail, sign up at http://www.techrepublic.com/techmails.jhtml

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IT Debate: IT & depreciation periods

by nonsuch In reply to IT Debate: IT & depreciat ...

While it would be useful, for practical purposes to vary the depreciation period, particularly where an asset has a different lifespan to that normally allowed for tax purposes there are difficulties where tax allowances occur. A few years ago I wasworking for a company which had this problem. A piece of equipment had a working life of three years; but the tax authorities insisted that for accounting purposes the capital cost was depreciated over ten years.

The result was two sets of accounts which nearly landed the company in serious trouble. I would stress that there was no fraud involved.

While it would make senses to write off assets over a period that coincides with their useful life: the tax authorities unfortunately do not agree. Companys therefore have to follow the legal requirements, whether they like it or not.

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IT Debate: IT & depreciation periods

by itdebate In reply to IT Debate: IT & depreciat ...

Your answer was featured in our IT Debate TechMail. To receive your free subscription to the IT Debate TechMail, sign up at http://www.techrepublic.com/techmails.jhtml

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IT Debate: IT & depreciation periods

by nonsuch In reply to IT Debate: IT & depreciat ...

While it would be useful, for practical purposes to vary the depreciation period, particularly where an asset has a different lifespan to that normally allowed for tax purposes there are difficulties where tax allowances occur. A few years ago I wasworking for a company which had this problem. A piece of equipment had a working life of three years; but the tax authorities insisted that for accounting purposes the capital cost was depreciated over ten years.

The result was two sets of accounts which nearly landed the company in serious trouble. I would stress that there was no fraud involved.

While it would make senses to write off assets over a period that coincides with their useful life: the tax authorities unfortunately do not agree. Companys therefore have to follow the legal requirements, whether they like it or not.

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IT Debate: IT & depreciation periods

by itdebate In reply to IT Debate: IT & depreciat ...

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IT Debate: IT & depreciation periods

by itdebate In reply to IT Debate: IT & depreciat ...

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IT Debate: IT & depreciation periods

by eurith In reply to IT Debate: IT & depreciat ...

Depreciation is the systematic assignment of
an asset's cost over its expected life. This
is an accounting issue not at IT issue. As
an IT Professional with a degree and experience in accounting as well, it is believed that IT should only offer suggestions and recommendations
to the accounting managers and let them make the accounting decisions. Some taxing
authorities such as property tax are allowing
shorter periods of writeoff for technology
equipment such as computers and telephone
equipment.

If a rapid depreciation
method is used for electronic equipment for
depreciation calculations the majority of the
cost has been written off by the end of
three years. From a business management point of view it is always niceto setup assets and tie those balances to the depreciation schedules, property insurance detail listings, property tax return details, etc. They can audit from here to there.

Rather than try to directly influence the accountants, IT people should use the shorter life expectancy on any cost proposals and justifications from their point of view and leave it to the accountants to adjust, as necessary, for their interest. In time, the
life expectancy will be reduced by both the
goverment and business.

Since the cost of personal computers and
related equipment has systematically declined
over the past ten years it makes good business sense to buy such equipment on a
recurring basis and charge against revenue
for the period as allowed. Another alternative is to lease the equipment and
make everyone's job easier.

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