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There's no good reason to not write down the asset at the same time you depreciate it for tax purposes. You're never going to become insolvent due to tax-motivated write-downs, because your tax incentive stops when your income for the fiscal year hits zero. It can't go negative due to accelerated depreciation, since you don't get money back in taxes when you're bleeding money.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jan 27th, 2011 at 11:07:19 PM EST
[ Parent ]
This may be purely national, but in France you can certainly count a deficit in Year N, by either getting a refund on tax paid in Year N-1, (carryback), or by carrying forward to reduce next year's (or over several) taxable profit.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jan 28th, 2011 at 02:16:50 AM EST
[ Parent ]
The reason is to if you do write if off all at once, you're going to have a balance sheet which doesn't give a fair view of your actual assets. That €40 million tanker is still worth €40 million in year 2, or at least €38 million. Creating hidden values in balance sheets doesn't help anyone.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Jan 28th, 2011 at 06:36:22 AM EST
[ Parent ]
You're always going to have a balance sheet that doesn't give a fair view of your assets - most fixed assets last longer than you depreciate them over (that's why coal looks so cheap; all the plants are fully depreciated, but remain functional).

And I disagree on hidden assets being of no help. They serve to stabilise balance sheets against cyclical variations. And, for the most part, it is not unreasonable to mark assets up during a downturn and depreciate them faster during an upturn. Because the conventional wisdom during an upturn tends to overvalue assets, so marking assets up during the nadir of the business cycle means you're more likely to get a realistic valuation, while depreciating assets faster during the upturn will make it less likely that you overshoot the long-term value of your firm.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jan 28th, 2011 at 11:23:55 AM EST
[ Parent ]
You're always going to have a balance sheet that doesn't give a fair view of your assets

This is no reason to make balance sheets less transparent than they need be. If so, we could just abolish balance sheets outright.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sat Jan 29th, 2011 at 03:29:18 PM EST
[ Parent ]

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