Sabanes Oxley Act of 2002

The cash basis of accounting records revenues when cash is received and expenses when cash is paid out. The accrual basis of accounting records revenues when they are earned and expenses when resources are used.

The value of fixed assets typically decreases over time. The amount of the decrease each year is accounted for and is called depreciation. Depreciation for the year is expensed on the income statement and added to the accumulated depreciation account on the balance sheet. So the value of the fixed assets on the balance sheet is reduced by the accumulated depreciation.

The equipment can be depreciated by one of two methods: Section 179 allows for a full write off in the year of acquisition (subject to certain limits). MACRS depreciation allows a systematic write off of equipment based on the type of asset. More business assets are either 5 year or 7 year property (CompleteTax, 2012).

26 USC § 168 (c) the building has 39 year recovery period. The calculation of depreciation for each year is found by multiplying the MACRS value for the relevant year by the cost of the nonresidential real property at the time of purchase. The basis at the time of contribution is found by summing the depreciation values for each year with one exception, the MACRS value for 2012 must be adjusted for the percentage of the year that the property was under the partnership. This is calculated by multiplying the MACRS value by the percentage of the year completed at the time of contribution. See the calculations below:

(a) Compute depreciation expense for 2011 and 2012 using (1) the straight-line method, (2) the units-of-activity method, and (3) the double-declining balance method.

> During a depreciable asset’s useful life, its revenue-producing ability declines because of wear and tear.

FASB. (2014). _Summary of statement no. 144._ Accounting for the Impairment or Disposal of Long-Lived Assets (Issued 8/01). Retrieved May 26, 2014 from ht

The statement of cash flow is the combination of cash that is created from operating, investing, and financial activities of a business. Kohl's Corporation displays a positive trend of cash flows mainly due to an increase in cash from operating and financials activities while reducing negative cash from investing activities. In the operating activities, there is an increase in depreciation costs due to Kohl's active expansion of existing stores while building new stores throughout the country. This expansion has increased the amount of depreciation that is added back as cash flow from $57,724,000 in 1998 to $127,491,000 in 2001. This depreciation cost as a percentage of net sales increased from 1.9% in 1998 to 2.1% in 2001. Another

 Which depreciation method provides you the highest depreciation expense in the first year? Why?

To calculate straight-line depreciation when you buy a building or equipment for your business, you calculate the useful life of the asset. Find the useful life of your asset, and then determine the salvage value at the end of the asset’s useful life. Subtract the salvage value from the original cost. Divide that figure by the number of years it will last. You can write off that figure each year on your taxes. The IRS publishes a

Code section 197 generally allows taxpayers to deduct the amortization with respect to amortizable intangibles which are stipulated in the section. The amount of the deduction is determined by amortizing the adjusted basis of the intangible over the 15-year period beginning with the month in which the intangible was acquired. Taxpayers may amortize these costs if they hold intangibles in connection with their trade or business or in an activity engaged in for the production of income. For example, Assume on January 1, 2004, Sara purchased all the assets of a business, and recognized two amortizable section 197 intangibles: $30,000 goodwill; $45,000 going concern

11. Accelerated methods of amortization result in a periodic amortization charge that is less in each succeeding period than the prior period. There are a number of variations of the accelerated methods, such as the declining balance method and the sum-of-the-years’-digits method. These methods are appropriate when an asset contributes to revenue

It is very interesting how the IRS uses depreciation as an investment vehicle to help businesses with their expenses and cash flow situation. Depreciation encourages business to purchase machinery and building which fuel economic expansion. The yearly expense recovery positively impact corporation bottom line; for equipment and vehicles it is usually 3 to 5 years and for buildings it runs longer between 15 to 30 years. Depreciation recapture is usually mandatory for assets that fall under the IRC Sec. 1231, Sec.1245 and Sec.1250,

Depreciation schedules need to be evaluated in regard to the life of the equipment and the type of depreciation utilized. The assets need to be monitored for compliance with GAAP. Assets need to be re-evaluated for value and life expectancy for depreciation and book values.

Depreciation refers to the cost allocation of tangible long-term assets; depletion refers to the cost allocation of natural resources; and amortization refers to the cost allocation of intangible assets. All three terms have similar underlying principles governing their use.