Investing General Discussion

Sanrith Descartes said:

Depreciation doesn't work like that. Assets being depreciated use a schedule based on the category of the asset based on Generally Accepted Accounting Principles.

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I just figured it would be normal to adjust your books based on observable reality rather than accountants being told how fast things depreciate at accounting school and not allowed to adapt from that.

Blazin said:

But how is it cooking the books when the books tell you the depreciation schedule? You have all the data needed, if you disagree with useful life then make adjustments just divide by a smaller number and make your investment choice.

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If you change the depreciation schedule for an item that has a generally accepted schedule then its cooking the books. A vehicle has an accepted schedule of 5 years. A residential rental property has a 27.5 year schedule. You "shouldn't" deviate from the schedule under GAAP.

In the weeds: There are accepted variations. In the residential rental example above, technically you can depreciated the various components are their individual accepted depreciation schedule. So if the house is 200k, but the appliances are 20k, technically its ok to depreciate the building for 180k at 27.5 years and the appliances at 20k over 10 years.

Furry said:

I just figured it would be normal to adjust your books based on observable reality rather than accountants being told how fast things depreciate at accounting school and not allowed to adapt from that.

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Except, if you tell your investors, creditors (and the IRS) you are following GAAP, then you really should be following GAAP.