Random Notes:
Capital Lease Example ...
ez13.com
Answers to common questions
gecapitalenergy.com
The Tax Reform Act of 1986 mandated a new method of depreciation called the "Modified Accelerated Cost Recovery System" or "MACRS" (pronounced "makers") for most depreciable property placed in service after 1986. Under MACRS, personal property is grouped into six different classes of recovery periods. Depending upon classification, the cost of the equipment is recovered over a period of 3, 5, 7, 10, 15 or 20 years. For most equipment (i.e., other than 15 or 20 year property), the MACRS deductions are calculated under the double-declining balance method (also known as the 200% declining balance method), switching to the straight-line method at a time to maximize the depreciation allowance. The MACRS deductions for 15 and 20 year property are similarly calculated, but use the 150% declining balance method, also switching to straight-line.
Define Capital Lease
A lease that meets at least one of the criteria outlined in paragraph 7 of FASB 13 and, therefore, must be treated essentially as a loan for book accounting purposes. The four criteria are:
title passes automatically by the end of the lease term
lease contains a bargain purchase option (i.e., less than the fair market value)
lease term is greater than 75% of estimated economic life of the equipment
present value of lease payments is greater than 90% of the equipment's fair market value
A Capital Lease is treated by the lessee as both the borrowing of funds and the acquisition of an asset to be depreciated; thus the lease is recorded on the lessee's balance sheet as an asset and corresponding liability (lease payable). Periodic lessee expenses consist of interest on the debt and depreciation of the asset.
gecapitalenergy.com
CMM
We bought 4 trucks for 5.75 million Canadian
so each truck costs 1.4375 million ....
and
straight line annual depreciation costs
is 287,500 per truck per year
or 287,500 * 4 trucks = 1.150 million depreciation
per year ....
except that some of that cost
is interest expense? which would mean that
depreciation expense is lower ...
forecasting 300,000 a quarter for depreciation expense
and xx,xxx for interest expense seems reasonable ...
Don't know if the trucks last 3, 5, or 7 years. |
