Hello Folks,
Would it be an accepted practice to write off equipment that has reached the end of its useful life (but still having book value) against owner's contributions?
Example: An old data collector is showing a book value of $500. The equipment is not reliable enough anymore to be kept in the inventory. Can it be written off against owner's contributions? To me, it is a simple way to get the equipment out of the books. My thinking is then the equipment is not tied to the company's books and can be dealt with in which ever way by the owmer.
Thanks,
Georges
Typically the purchase price of equipment is written off for tax purposes based on a certain schedule. Check with your accountant. Once it has been written off for tax purposes, there may still be a value left that you can do with as you want. Say if you were selling your share of the company to your partner, that piece of equipment might have a value if you were to purchase something similar, same age condition etc.
Check with your accountant is best advice.
Not sure what you mean by book value. Sometimes there are two sets of books, tax books and what you think things are worth. The tax book value reduces as you depreciate the asset. Something like a data collector would depreciate to zero in a fairly short time. So if its tax book value is $500 you still have depreciation remaining. Once a depreciable asset reaches zero on the tax books you can throw it away and not affect your taxes. However if you sell it for value then you have a capital gain and would need to show it as income. Some things have salvage value and may never depreciate to zero as the material can be salvaged for some value.
If an asset has tax book value but no longer has any value you should be able to write the balance off as a loss sort of like it was stolen or destroyed in a accident. You just need to account for it on your tax return (at least in the US).
Some things like land don't depreciate. Anyway if you really need to know contact a CPA.
Thanks folks,
In my opinion, some of the depreciation classes (and associated percentages) in the capital cost allowances are not representative of the true rate of depreciation of the survey equipment.
Technology moves fast. Take GPS for instance. My old boss used to say that a GPS system should be paid in 3 years. He is right. So, at a 20% depreciation rate (+1/2 year rule in first year), the book value remains too high when compared to market value. How much would you pay for a used 3 year old GPS system? Probably less than its tax value.
And I agree, consulting an accountant is good advice. Consulting two, three, four is even better. Companies come in many styles, worth shopping around for one that fits.
Canadian rules are likely different than the American. Here in the states these things are usually depreciated at a rate that renders their book value at zero well before the useful life ends. So the situation you describe doesn't come up much, hereabouts.