The Accelerated Cost Recovery System (ACRS) was a method for depreciating property for tax purposes in the United States, allowing for accelerated depreciation schedules compared to traditional methods. This system has largely been replaced by the Modified Accelerated Cost Recovery System (MACRS).
The Accelerated Cost Recovery System (ACRS) is a depreciation method introduced by the Economic Recovery Tax Act of 1981 that allows taxpayers to recover the cost of an asset over a specified life that is shorter than the actual useful life of the asset, thereby reducing taxable income in the earlier years of an asset's life.
A comprehensive document detailing a business's accounting policies and procedures, often including account codes and a chart of accounts. Key aspects include methods for treating depreciation and other asset-related processes.
Actual Cash Value (ACV) is an insurance term referring to the amount equivalent to the replacement cost of damaged or lost property, minus depreciation. It is a measure sometimes used as a substitute for market value in insurance claims.
Increased depreciation that can be deducted during the first year of a capital expenditure. This allows businesses to more rapidly deduct capital expenditures of most new tangible personal property and certain other new property.
An adjusted basis, or adjusted tax basis, refers to the original cost or other basis of property, reduced by depreciation deductions and increased by capital expenditures. It serves as the base amount from which to measure gains and losses for tax purposes.
Adjusting entries are made at the balance-sheet date under an accrual accounting system to ensure that the income and expenditure of a business are included in the correct period. Examples include adjustments for depreciation, prepayments, accruals, and closing stock.
Allocation involves distributing resources for specific uses or spreading costs over multiple products, customers, people, or time periods.
Allowance for depreciation refers to the reduction in the book value of a fixed asset due to wear and tear, age, or obsolescence. It is an accounting term that allows businesses to allocate the cost of an asset over its useful life.
A comprehensive U.S. legislation that repeals the Foreign Sales Corporation/Extraterritorial Income regime and enacts a variety of tax-related changes to boost domestic job creation.
Amortization is the process of gradually writing off the initial cost of an asset over a specific term or the repayment of debt in installments.
Amortized cost refers to the part of the value of an asset that has been written off due to accumulated depreciation over time. It is a key accounting concept used to allocate the cost of an asset over its useful life.
A method of calculating the depreciation on a fixed asset designed to produce a constant annual charge that includes both depreciation and the cost of capital.
An apartment building is a structure with multiple individual apartment units accessed through a common entrance and hallway. It may also contain commercial spaces, such as stores, typically on the ground floor.
Appraisal is a method of depreciation that values an asset at the beginning of an accounting period and again at the end. Any diminution in value is charged as an expense to the profit and loss account.
An assets register, commonly referred to as a fixed-assets register, is a detailed ledger used by organizations to track and manage their fixed assets, including the acquisition, depreciation, and disposal of these assets.
Backlog depreciation refers to the additional depreciation charge that occurs when an asset is revalued, causing an increase in accumulated depreciation.
The value of an asset as represented on the balance sheet, detailing how various types of assets are recorded considering depreciation, amortization, and valuation methods like fair value accounting.
Balancing allowance is the allowance available on disposal of an asset when the proceeds are less than the written-down value for tax purposes. It compensates for the loss in value of the asset beyond its depreciation.
Basis is an amount usually representing the taxpayer's cost in acquiring an asset. It is crucial for various tax purposes including computation of gain or loss on the sale or exchange of the asset and depreciation with respect to the asset.
Book depreciation, also known as accounting depreciation, refers to the allocation of the cost of tangible assets over their useful lives, reflecting the wear and tear, deterioration, or obsolescence of these assets.
Capital Consumption Allowance (CCA) represents the allowance for depreciation included in the Gross Domestic Product (GDP). It accounts for around 11% of GDP and is subtracted to calculate the Net National Product (NNP).
Capital expenditure, often referred to as capital costs or capital investment, pertains to substantial expenses incurred by an organization for purchasing or enhancing fixed assets. These costs are capitalized on the balance sheet and depreciated over the asset's useful life.
Capital Expenditure (CAPEX) refers to funds used by a business to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment. These expenditures are capitalized and either depreciated or depleted over their useful life, as opposed to repairs, which are deducted from the current year's income.
Capitalized value represents the value at which an asset is recorded in the balance sheet of a company or organization. It is also the capital equivalent of an asset that yields a regular income, calculated at the prevailing rate of interest.
The balance-sheet value of an asset or liability, representing the amount at which it is reported on the financial statements.
Cash earnings refer to the income that a business generates from its operations after accounting for cash revenues and cash expenses, specifically excluding noncash expenses such as depreciation.
Committed costs are typically fixed costs that management has a long-term responsibility to pay, such as rent on a long-term lease and depreciation on an asset with an extended life.
Controllable Contribution refers to the sales revenue of a division, less those costs that are controllable by the division's manager. It is a key metric for assessing the performance of divisional managers.
The cost approach is a method of appraising property based on summing the reproduction cost of improvements, minus depreciation, to the market value of the site.
Cost basis refers to the original price of an asset and is fundamental in determining depreciation as well as capital gains or losses. Typically, it is the purchase price, but in cases of inheritance, it is the market value of the asset at the donor's death.
Cost segregation is the process of accurately classifying assets for federal tax depreciation, which can result in significant tax savings for businesses. This process involves a professional and supportable analysis of the property to separate faster depreciable assets.
Curable Depreciation in appraisal refers to deterioration or depreciation that can be corrected at a cost less than the value that will be added.
Current-Cost Accounting (CCA) is an accounting approach focusing on the operating capability of a business, ensuring assets are valued to prevent business loss upon their deprivation. This method highlights adjustments for inflation and operational capacity, differentiating holding gains from operating profits.
The declining balance method is a commonly used depreciation technique in accounting where an asset loses value by a fixed percentage each year, reflecting the reality that assets tend to lose more value early in their useful lives.
Deferred taxation refers to the sum set aside for tax in the accounts of an organization that will become payable in a period other than the one under review. It arises due to timing differences between tax rules and accounting conventions.
A method of calculating the depreciation of a wasting asset based on the rate at which it is being used. For example, a coal mine could be depreciated on the basis of the rate at which coal is extracted from it.
The depreciable amount is the value of a fixed asset used as the basis for calculating the depreciation charge for a specific period.
A fixed asset that is subject to depreciation to account for its loss in value over time. Depreciation is a systematic process of expensing the cost of tangible assets over their useful lives.
The concept of depreciable basis is essential in determining the amount that can be depreciated for tax purposes. It represents the initial cost of an asset, including certain expenditures necessary to put the asset into use.
Depreciable Life refers to the period over which the cost of an asset is spread for tax purposes, or the estimated useful life of an asset for appraisal purposes.
Depreciable real estate refers to property used in trade, business, or investment that is subject to depreciation deductions under Section 167 of the Internal Revenue Code. Land itself is generally not depreciable.
Depreciable real estate refers to property used in a trade or business, or held for investment purposes, which is subject to depreciation under Section 167 of the Internal Revenue Code. Typically, land itself is not depreciable; however, land with minerals may be subject to depletion.
The process of systematically reducing the recorded cost of a tangible fixed asset over its useful life.
Depreciated cost, also known as depreciated value or net book value, is the value of an asset after accounting for depreciation. This concept is vital for businesses to manage asset values accurately over time.
Depreciation is the systematic allocation of the cost of a tangible asset over its useful life. It reflects the asset's usage, wear and tear, or obsolescence.
Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life. It is used to account for declines in value as assets age and wear out.
Depreciation refers to the reduction in the value of an asset over time, often due to wear and tear. This accounting process allows businesses to allocate the cost of a tangible asset over its useful life.
Depreciation is a measure of the decrease in value of tangible fixed assets during a given accounting period, reflecting wear and tear, obsolescence, or reduction in useful economic life. It can be relevant for both accounting and currency valuation contexts.
Depreciation is an accounting method that allocates the cost of a tangible asset over its useful life.
Depreciation refers to the reduction in the value of an asset over time, particularly due to wear and tear. It is utilized in accounting to allocate the cost of a tangible asset over its useful life.
Depreciation refers to the methodical reduction in the recorded cost of a tangible fixed asset, allocated over its useful life. It is a key accounting concept employed to denote the impairment of value of assets over time due to wear and tear, age, or obsolescence.
Depreciation allowance refers to the total depreciation deducted against property used in a trade or business or held for the production of income, allowing for an annual deduction for wear and tear and diminution of the property's value. It is also known as accumulated depreciation.
Depreciation methods are accounting techniques used to allocate the cost of a tangible asset over its useful life systematically. These methods are essential for properly matching expenses with revenues.
The percentage rate used in various methods of depreciation to determine the amount of depreciation that should be written off a fixed asset and charged against income or the profit and loss account.
Depreciation Recapture refers to the portion of taxable capital gain from the sale of an asset, which represents the depreciation previously deducted for that asset.
The diminishing-balance method, also known as the reducing-balance method, is a way of calculating depreciation of fixed assets whereby the annual depreciation charge is a fixed percentage of the depreciated value at the beginning of each period.
Disposal value, also known as residual value or salvage value, is the estimated amount that an owner expects to obtain from the sale of an asset at the end of its useful life.
The Double Declining Balance Method is a form of accelerated depreciation method that spreads the cost of an asset more heavily in the early years of its service life.
The double-declining-balance method of depreciation involves applying twice the straight-line rate to the depreciable balance of an asset.
Economic Life refers to the period during which a machine or other property is expected to generate more revenue than operating expenses, thereby staying profitable and justifying its use.
Economic obsolescence in real estate refers to the loss of property value due to external factors outside the property itself. For instance, an expensive private home may lose value if an industrial plant is built nearby. This factor must be considered during the property's appraisal.
Machines or major tools necessary to complete a given task. Equipment must be capitalized and written off over the appropriate depreciable life.
Equipment leasing involves acquiring tangible assets such as computers, railroad cars, and airplanes, and then leasing them to businesses in exchange for lease payments and potential tax benefits like depreciation deductions.
The period of time over which a taxpayer will use an asset. In theory, depreciable assets are written off over this period for depreciation purposes. However, tax laws often use artificial recovery periods unrelated to the estimated useful life.
An expense is a business cost incurred in operating and maintaining property, used in profit-directed business activities and calculated as the cost of goods and services used. Expenses can be currently deductible costs, distinct from capital expenditures that must be depreciated or amortized over the property's useful life.
Fixed assets are long-term assets used in the operations of a business, such as land, buildings, machinery, and equipment. These assets are essential for production and business operations and are classified in various ways on the balance sheet.
A fixed assets register is a detailed record that keeps track of all the fixed assets owned by an individual or organization. It includes important information such as asset location, purchase details, useful life, and depreciation values, aiding in accurate financial reporting and asset management.
Fixed production overhead consists of factory costs that remain constant regardless of changes in the level of production or sales. Understanding these overheads is crucial for accurate financial and managerial accounting.
A comprehensive listing of a company's fixed assets, detailing each asset's location, cost, revaluation, estimated net value, useful economic life, depreciation method, accumulated depreciation, and net book value.
Free depreciation is a method of granting tax relief to organizations by allowing them to charge the cost of fixed assets against taxable profits in whatever proportions and over whatever period they choose. This provides considerable flexibility for businesses in managing their cash flow and tax liabilities.
A term used in accounting to describe a fixed asset to which all allowable depreciation has been charged according to accounting or tax laws. The asset is carried on the books at its residual value, although its market value may be higher or lower.
Funds From Operations (FFO) is a key measure used to determine the profitability and performance of a Real Estate Investment Trust (REIT).
Furniture, Fixtures, and Equipment (FF&E) are tangible assets that businesses use to enrich their operations. Unlike real property, these items are typically moveable and are not permanently affixed to buildings.
In current-cost accounting, a gearing adjustment is a financial modification that reduces the charge to the owners for the effect of price changes on depreciation, stock, and working capital. This adjustment is rationalized by the fact that a part of the extra financing is provided by the loan capital of the business.
A fundamental accounting concept that assumes an enterprise will continue its operations for the foreseeable future. It is integral in financial reporting and valuation of assets and liabilities.
A method of valuing units of stock or other assets based on the original cost incurred by the organization, charging the original cost against profits through various means such as FIFO or average cost, and reporting depreciation based on the original cost.
Any permanent, fixed development of land or buildings through expenditure of money or labor that more than merely replaces, repairs, or restores to original condition, and tends to increase the value of the property.
In real estate appraisal, incurable depreciation occurs when the cost to correct a defect exceeds the benefit gained from the repair, making it uneconomical to spend on the repair.
An incentive in the USA that allows businesses to offset a portion of the cost of a depreciable asset against their income tax liability in the year of purchase, promoting investments in certain types of assets.
In taxation, listed property refers to assets such as automobiles, computers, and cellular phones that are subject to a 50% business use test. Depreciation methods for these assets vary based on their usage for business purposes.
Machinery and plant refer to various types of equipment and fixtures used for manufacturing and industrial purposes. These assets are key components in business operations, typically classified under fixed assets on the balance sheet.
Manufacturing Overhead, also known as Production Overhead, includes all the indirect costs incurred in the production process that cannot be directly traced to the product or cost unit. These costs cover a wide range of expenses such as depreciation of machinery, factory rent, maintenance expenses, and utilities.
Market value is the price a willing buyer would pay for property purchased from a willing seller, while actual cash value is the replacement cost of damaged or destroyed property minus depreciation and obsolescence.
The mid-month convention in taxation concerns the depreciation of residential and nonresidential real property, attributing service or disposal to the midpoint of the month in which these events occur.
MACRS is a method of depreciation used in the United States to recover the cost of tangible property over a specified life span. Introduced by the Tax Reform Act of 1986, MACRS replaces the Accelerated Cost Recovery System (ACRS) and offers a faster depreciation schedule for tax purposes.
MACRS is a depreciation method introduced in 1986 to calculate tax depreciation for property placed in service after its inception. It allows businesses to recover the cost basis of certain property more quickly, by assigning longer lives for personal property and offering conventions for calculation.
MACRS is a depreciation system in the USA designed to encourage capital investment by businesses. It enables a quicker recovery of an asset's cost by allowing greater depreciation deductions in the earlier years of an asset's life.
Net Book Value (NBV) represents the carrying value of an asset on a company's balance sheet, calculated by subtracting accumulated depreciation or amortization from its original cost. It reflects the current value of a company's assets for accounting and investment decision purposes.
Net Domestic Product (NDP) represents the Gross Domestic Product (GDP) of a country minus the depreciation of its capital goods, providing an indication of capital obsolescence and the investment required to sustain current economic output.
Net Realizable Value (NRV) represents the estimated selling price of an asset in the ordinary course of business, minus any predictable costs associated with the completion and sale of the asset. It is a critical metric in inventory valuation and accounting practices, ensuring realistic asset values are reflected in financial statements.
Net residual value is an important assessment in accounting, business valuation, and asset management, representing the final estimated value of an asset after accounting for depreciation and other expenses.
Normal wear and tear refer to the physical depreciation arising from the age and ordinary use of a property. Understanding this concept is critical in fields such as accounting, real estate, and property management.
Obsolescence refers to the decline in the value of an asset due to its age or reduced usefulness caused by technological advancements or market changes.
The original cost refers to the initial amount paid to acquire an asset, which is used as the basis for financial reporting and depreciation calculations.
Phantom income refers to income that is taxable even though the taxpayer has not received equivalent cash or financial benefit. This situation often arises in leveraged real estate transactions where excess depreciation over mortgage amortization leads to a taxable gain without cash flow.
Physical life refers to the expected duration an asset, such as real estate improvements, can exist physically. It contrasts with useful life, which considers the period the asset remains functional and economically viable in its usage.
The term 'Placed in Service' refers to the date when property is in a state of readiness and is available for a specific use. This is a critical concept in accounting and taxation, as it determines the start of depreciation or amortization for the asset.
The Production-Unit Method is a technique for calculating depreciation where the depreciation charge is based on the number of units produced by machinery over its useful life.
Property, Plant, and Equipment (PP&E) are tangible fixed assets used in operating a business. This category includes land, buildings, machinery, fixtures, and other types of equipment that are expected to be used over multiple accounting periods.
