Select one financial statement item from the list below:
LIFO vs. FIFO Inventory
The concept of depreciation tends to manifest following the procurement of assets for revenue generation. Asset acquisition primarily embraces the capital expenditure model with a long-term perspective for fixed or long-term assets. Reflecting on the interests of depreciation as a factor in the description of usage expectations points to potential attributes such as the expected reflection of implications suggested to books of accounts. A further implication of depreciation includes the implication of the attached attributes, including the progressive nature of its occurrence. In most cases, attaining the desired outcomes under depreciation involves reflecting on the implication of manifestation and the subsequent role of resell value. A reflection of the treatments accorded to depreciation in the generally accepted accounting principles, GAAP, and taxation models would allow a better insight into its implication in accounting.
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Compare how the accounting for the item would be treated for accounting purposes under GAAP as documented in the FASB codification vs. treated for tax purposes under the Internal Revenue Code. Prepare a paper analyzing the key differences with references to the generally accepted accounting principles according to the FASB Codification and tax guidance, referencing the Internal Revenue Code section to support your conclusions.
Depreciation in GAAP
The implication of depreciation under the GAAP involves appreciating its role as both an accounting practice and an attribute of the business. Routine asset usage would involve encountering wear and tear, leading to the eventual occurrence of the concern of depreciation. Capturing such occurrence on the books of accounts tend to embrace various approaches, including commonly accepted standards (Jensen, 2018). Accounting principles make preferences on the input of depreciation to have defined cost attribution models designed to ensure the eventual attainment of the desired outcome remains governed by the asset’s usefulness (Schwab et al., 2018). As a result, the GAAP rules tend to introduce potential attributes such as the useful economic life of an asset in describing the period that defines the integration of the asset in revenue generation.
The implication of the FASB codification involves appreciating the model to focus on the allocation in contrast to valuation. As a result, the implementation of depreciation accounting using the FASB codification allows accountants to evaluate the impact of depreciation from an impact perspective. Promoting such a model would imply the eventual decision on the depreciation accounting would involve estimating the impact it suggests on the asset’s value. Due to the allocative approach of the FASB codification, the value of the asset may not manifest an accurate position in the description perspective (Roe, 2014). Instead, the eventual decision on the asset’s potential may involve appreciating the accounting approach’s potential impact in ensuring the asset’s targeted economic life remains captured in the model dynamics.
The implication of the economically viable period in the description of the asset implies on the potential of having the asset face further descriptions from the perspective input of product attributes and the expected returns. However, the implication of the asset is a capital expenditure further complicates the need to account for the generated revenues while appreciating the input of wear and tear. As a result, the GAAP proposes integrating a progressive cost allocation model defined by generally accepted standards. Still, the adoption of such a cost allocation model would need the appreciation of accuracy in asset matching since the incurred sense of depreciation would need to relate to the asset directly (Schwab et al., 2018). Determining the ideal cost breakdown model for the study would involve a further reflection on the anticipated impact in cost management with potential inputs such as the need to examine the involved elements of depreciation.
The implication of depreciation would involve appreciating the potential input of aspects such as the salvage value following the disposal of the asset. In some cases, the eventual decision regarding the usage of the asset after the completion of its economically viable period would have an impact on the eventual decision by the accounting standards. As a result, the accounting of depreciation involves the adoption of three key approaches. Accountants under the GAAP may adopt a declining balance modeling representing the input of depreciation of their record or focus on the units of production approach. Also, the GAAP offers the prospect of engaging the straight-line depreciation model concerning the economic lifespan of the asset (Roe, 2014). In either case, the decision to reflect on the implication of the engaged asset tends to comprise further attributes such as the economic usefulness of the asset and the eventual reflection of the usage to the revenues of the firm.
The input of the GAAP proposals considers the prospective impact of derivatives of depreciation, such as accelerated and accumulated concepts. In either case, the role of the involved accountant involves ensuring the ideal value of the asset remains captured at the end of the operation model. In other cases, the need to navigate the options of accounting per the expectations of the GAAP would involve ensuring the potential balance in asset usefulness and the attached sense of depreciation define the actual state of the firm (Deo, 2018). In both cases, the role of the involved players would further the agenda of performance from a proactive perspective, with concerns such as the net value of the maintained books remaining pivotal in the appreciation of the asset (Johnson, 2015). Most firms tend to consider the input of depreciation under models such as declining balance when representing their impact on the books of account. As a result, the asset entries in the books of account would have reducing attributes through the progression of the useful economic period of the asset.
The straight-line model involves establishing the anticipated useful economic span of the asset and modeling its implication on the books of account covering the entire period. Ideally, the suggested depreciation through a straight-line model would involve breaking the registered entries equally across the involved fiscal years. As a result, the attained outcome would point to the eventual breakdown of the incurred expenses with the probability of having an equal distribution across the usage period (Popatia, 2017). GAAP allows the treatment of depreciation by such expectations. However, most accountants opt to engage the other depreciation accounting models due to their progressive involvement in the description of the expected asset value.
Depreciation through the internal revenue code
The concept of depreciation and related implication in accounting sums the interests of the 26 U.S. Code § 167, where the internal revenue service, I.R.S., fetches advice on how to address the associated tax interest. Ideally, the prospect of depreciation modeling o a reduction in value asset remains accepted under the internal revenue code (Black et al., 2017). However, the manner in which accountants may reflect the suggested subtractions tends to remain defined by the expectations of accounting. However, the internal revenue code allows for the provision of a sense of plausibility during the implementation of the policy. Other perspectives addressed by the internal revenue code include the expectations of the depreciation model (Roe, 2014). In essence, the attributes of assets involved in the depreciation model include the expectation of their use, where elements such as income generation and subsequent involvement in trade tend to define the descriptions of the internal revenue code.
The internal revenue code advises the deduction model to model on the expectations of the 26 U.S. Code § 1011 and 26 U.S.C. § 1012, where the expectations of gains or losses guide the process. However, section 1011 points to the deduction to focus on the properties upon acquisition. Other attributes associated with the internal revenue code include the salvage value’s implication and its consideration as an attribute of operations revenue (Lee et al., 2015). Still, the reflection of the revenue attribute from the salvage model tends to comprise a future entry in the accounting prospect due to the predictive nature of depreciation accounting. Section 1012 points to the input of depreciation distribution through invoking the apportioning model. 26 U.S. Code § 164 allows the reflection of the prospective exceptions relating to the entries made by taxpayers from their points of operation (Harris & Stahlin, 2018). Attributes such as personal, state, and foreign taxes tend to have a different impression of depreciation as perceived by section 167.
Nonetheless, the impression of depreciation remains guided by progressive deductions that adopt the accounting approach embraced by the involved firm. In other aspects, the role of depreciation accounting remains subjected to further expectations with ambitions such as the market expectations and the involved firms (Roe, 2014). The I.R.S. anticipates potential conflict in the expectations of the involved regulation on depreciation. In response, section 167 (4) offers special rules to guide the implementation of the deduction process.
The interest of the depreciation breakdown further embraces the perspective input of attributes such as the nature of the engaged asset. Properties such as digital assets may have a different approach in describing their depreciation value. Reflecting on the expectations of the I.R.S. on the accounting behaviors of the taxpayers indicates the need to ensure the engaged practices manifest a sense of uniformity in the embraced standards. However, such approaches would suggest a potential advocating of either of the accounting standards (Klein, 2017). Still, providing a detailed approach in treating the concern of depreciation allows the visualization of the current expectations regarding the accounting process. Other expected outcomes include the implication of the decision on the expected tax value perspectives.
Other Related Post: Inventory Management
Black, E. L., Christensen, T. E., Taylor Joo, T., & Schmardebeck, R. (2017). The relation between earnings management and non‐GAAP reporting. Contemporary Accounting Research, 34(2), 750-782.
Deo, P. (2018). Sale and Leaseback Revisited. Journal of Accounting and Finance, 18(5).
Harris, P., & Stahlin, W. (2018). GAAP to IFRS Income Conversion Case Study: An Examination of S.E.C. Noted Accounting Differences. The Accounting Educators’ Journal, 27(1).
Jensen, E. M. (2018). Is Capping the Deduction for State and Local Taxes Unconstitutional? Journal of Taxation of Investments, 35(3).
Johnson, T. (2015). Texas Inventory Tax: Appraisal Districts’ Misunderstanding of the Law Causing Texas Retailers to Pay the Price. Mary’s L.J., 47, 399.
Klein, I. (2017). The Gap in the Perception of GAAP. American Business Law Journal, 54(3), 581-634.
Lee, B. B., Vetter, W., & Williams, M. (2015). Book-tax income differences and major determining factors. Accounting and Finance Research, 4(3), 55.
Popatia, K. (2017). IFRS & GAAP: Reconciling Differences Between Accounting Systems and Assessing the Proposed Changes to the IFRS Constitution. Nw. J. Int’l L. & Bus., 38, 137.
Roe, J. (2014). Transition from US GAAP to IFRS: Analysis of impact on income tax administration in U.S.A. European Financial and Accounting Journal, 9(4), 86-109.
Schwab, C. M., Stomberg, B., & Xia, J. (2018). How US GAAP Distorts the Effective Tax Rate As a Measure of Tax Avoidance. Kelley School of Business Research Paper, (18-92).
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AC 530 Final Research Paper
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Select one financial statement item from the list below:
- LIFO vs. FIFO Inventory
Compare how the accounting for the item would be treated for accounting purposes under GAAP as documented in the FASB codification vs. treated for tax purposes under the Internal Revenue Code. Prepare a paper analyzing the key differences with references to the generally accepted accounting principles according to the FASB Codification and tax guidance, with references to the Internal Revenue Code section to support your conclusions.