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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