Furry
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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.
Investing General Discussion
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Sanrith Descartes
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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.
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Sanrith Descartes
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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.
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Kithani
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I think you would be wrong on that. I see why you think it would make sense but if you think about it giving accountants a grey area / subjective control over the numbers could lead to a very ugly situation
Furry
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I decided to research this subject because I like to be informed when I speak. The GAAP method allows the accountant to make a determination on depreciation that is informed by past experience, industry norms, and manufacturers claims among other things. The biggest thing is that such a determination must be reasonable and documented. So the accounting records should include reasoning for the depreciation schedule changing.
Considering all these companies hire third party accountants to come up with these schedules and there’s a consensus move between all of them, cooking the books as an explanation seems extremely unlikely.
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Sanrith Descartes
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