Maximizing depreciation benefits

Article Abstract:

The Tax Reform Act of 1986 allows managerial accountants to choose between accelerated cost recovery systems (ACRS) and modified accelerated cost recovery systems (MACRS) when depreciating assets placed in service from Aug 1, 1986 to Dec 31, 1986. The choices can be made on an asset-by-asset basis, rather than across-the-board depreciation of all assets. The benefits of each type of depreciation method are examined for assets with useful lives of three, five, or seven years (or longer) and for decisions made during mid-year or mid-quarter accounting conventions. MACRS is recommended for assets with the same useful lives under either system when using mid-year or third quarter conventions. ACRS is recommended for assets having longer useful lives under MACRS (than under ACRS), with mid-quarter conventions in either the third or fourth quarter.

Taxation, Economic aspects, Valuation, Depreciation, Assets (Accounting), Inventories, Fixed assets, Managerial accounting, Reserves (Accounting), Accelerated depreciation

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LIFO-FIFO: a simple solution to inventory disclosure problems

Article Abstract:

Accounting theory favors last-in, first-out (LIFO) usage in the income statement, but first-in-, first-out (FIFO) in the balance sheet. FIFO simulates the physical flow of goods but LIFO is better for current costing. Changes in tax laws since 1979 have caused rethinking on the use of these systems, examples of which are provided.

Tax accounting, Accounting and auditing, Inventory control

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