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Equipment depreciation


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  #1  
Old 03-16-2009, 04:45 PM
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Question Equipment depreciation

Hey guys,

Have a question for you all. How important is equipment depreciation and how do you calculate it. As an example how would i calculate the depreciation of my John Deere 125 lawn tractor. It is about 1 year old.

I don't know how this factors into the books.

Mike

Any help is greatly acepted. Thanks
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Old 03-16-2009, 05:40 PM
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Lawn care business tipsLawn Care Business Book
I think it's 30%.. not sure tough
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Old 03-16-2009, 06:01 PM
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Genrerally Accepted Accounting Principals for Computers and Equipment is 20% per year.
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Old 03-16-2009, 06:25 PM
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Default equipment depreciation

This might help.
https://www.ird.govt.nz/cgi-bin/form.cgi?form=depnrates

Steve
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Old 03-16-2009, 07:20 PM
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My tax person told me here in CA. the dep. is the value spread over 5 years.
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Old 03-17-2009, 05:52 PM
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anyone else from Canada have any more things to add about depreciation?

Mike
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Old 03-17-2009, 06:33 PM
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Quote:
Originally Posted by Lukacs Property Maintenance View Post
anyone else from Canada have any more things to add about depreciation?

Mike
What other things would you like to know? I have my MBA and am a CGA, will answer your questions if you can be a little more specific.

Deprecation is used to reduce the tax your company may have to pay, falls below the line as a non cash item, when looked at by a financing company.

For a company that is or even a company that is not making money it is very important to report as you can carry forward tax loss(s) or offset profit.

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Old 03-18-2009, 04:14 AM
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Quote:
For a company that is or even a company that is not making money it is very important to report as you can carry forward tax loss(s) or offset profit.
I think this is a very important concept that is not widely understood. Could you tell us a little about what that means? How does that help the average lawn care business owner?

Also for the new lawn care business owner what is equipment depreciation?
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Old 03-18-2009, 05:46 AM
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Quote:
Originally Posted by Steve View Post
I think this is a very important concept that is not widely understood. Could you tell us a little about what that means? How does that help the average lawn care business owner?

Also for the new lawn care business owner what is equipment depreciation?
As always it is best to contact an accountant in your area who knows your Provincial or State tax rules, here is a general explanation that would fit pretty much anywhere in North America, quite often you will read in a financial statement they were prepared with generally accepted accounting principals, again generally speaking.

Our governments basically set the tax rules at the Feredat level then the province or state will piggy back onto that rule, for example if the Federal Government here were to tax you at 20% on profits, in Nova Scotia the Provincial Government would tax you on the amount owing to the Federal Government, this is your total business tax.

When we buy a piece of equipment, generally speaking one can write off any amounts $500.00 or less at 100% in the year they were purchased anything above that it is generally accepted that a piece of equipment has a life of five years (not to be confused with how many years you can get out of that piece), thus you can reduce your business income by 20% of the purchase price, less any tax you paid until the full value is NIL, this same rule is used by most companies that trade on the exchanges.

Every company has a balance sheet, this lists amoung other things Capital assets and owners contributions. In year one the purchase price less sales tax is shown at the full value of the item until the company year end at which time you depreciate and record depreciation, we consider it a non cash journal entry if you will however it reduces your company income and thus the taxable income, if you record a loss you can carry it forward to future years profits.

I don't want to get complicated but tax losses are sometimes sold to companies that have very large profits, when I worked in gold exploration we had no income, we were funded by shareholders and new shareholders, our tax loss(s) were in the millions per year, we could sell these to for example a mining company that had large profits, not a 100% but at a %.

In our case if we had tax loss(s) and I am not sure what the rules are in the USA, it is considered an asset and the purchasing company would pay an amount for those loss's as they can apply them towards profits.

So in summary the reason for all this is it's required book keeping and should you ever go for financing, if it is not present it could show that one is not keeping proper accounting records.

Andy
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Old 03-18-2009, 08:22 AM
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This is great stuff!

Quote:
it reduces your company income and thus the taxable income, if you record a loss you can carry it forward to future years profits.
What does that mean to the average lawn care business owner?

Can you help me with an example to better explain it?

Say my lawn care business just started up and I spent $15,000 in expenses for marketing or other things I needed to get going. But I only made $10,000 in income, I lost $5,000 my first year. How does having a loss help me in the future years?

Also, does the 5 year depreciation cover vehicles and trailers?

Do you have any thoughts on when it is better to buy vs. lease equipment. Or lease and then buy at the end of the lease?
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