Client Name, LP Accounting Procedures: General Asset Accounts

Client Name, LP

Accounting Procedures:

General Asset Accounts

General Information

Available for assets placed in service:– In same year– With same asset class– With same depreciation method– With same recovery period, and– With same convention

Treated as single asset for depreciation

Advantages of Using GAA

Simplified receipt of assets Simplified bookkeeping Simplified disposition of assets Simplified tracking of assets for accounting and

tax purposes If any assets are disposed of during a year,

depreciation continues unchanged Section 179 expensing still available Eliminates need to track individual components

of devices

Disadvantages of Using GAA

Any dispositions before end of life of the GAA are recorded as the sale of an asset with a ZERO adjusted basis – all proceeds included in taxable income

Proceeds taxed as ordinary income / depreciation recapture

No losses allowed Election required each year on tax return for

assets placed into service that year

Procedures

Each invoice for purchase of devices segregated into:– GAA for that year– Items to be expensed, ie, templates

GAA items booked into Fixed Assets in QuickBooks with date designation

Depreciation booked at end of year, quarterly or monthly

QuickBooks Changes

Some account name changes Separate accounts for office equipment, computers,

leasehold improvements, etc. “Device” GAA parent account GAA subaccount with year designator

– Devices:2005– Devices:2006

Separate Excel spreadsheet or database to track serial numbers in particular year

GAA Example

Assumptions– Units placed into service this year: 200– Cost per unit: $125– MACRS recovery period: 5 year– Convention: Half-year

Disposition of 75 units in Yr 2 for $50/unit Disposition of remaining units in Yr 4 for

$40/unit

Depreciation Comparison

Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6

Regular

5,000

6,500

3,000 900

-

-

GAA

5,000

8,000

4,800

1,440

-

-

Comparison of Year 2 Sale

Regular GAA

Sales price 3,750 3,750

Adjusted basis 6,000 -

Gain/(Loss) (2,250) 3,750

Comparison of Year 4 Sale

Regular GAA

Sales price 5,000 5,000

Adjusted basis 3,600 5,760

Gain/(Loss) 1,400 (760)

Comparison of Taxable Income

Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Totals

Regular (5,000) (8,750) (3,000) 500

-

- (16,250)

GAA (5,000) (4,250) (4,800) (2,200)

-

- (16,250)

Summary

Simplifies device acquisition and accounting Over time, net taxable income using GAA

identical to tracking discrete devices and/or components

Significant time savings No need to change current device tracking

methodology