Reducing the value of an asset

Hello,

An asset was added in 2018 for $248K. Due to a settlement in our favor, the asset value needs reduced to about $100K. I know I would just change the acquisition value of the asset for each of the books, but how would I handle depreciation? I don't want to mess with the prior deprecation, but I would ideally like the future depreciation to reflect the changes. Is that possible? If so, which option do I choose? Would it be "Current Through Date?"

 

  • Hi, Nicole,

    A $100K deduction is indeed a favorable settlement!

    Reduce the acquisition value by the $100,000 across the books.  Make it effective with the current through date.  That will ensure you do not "mess with the prior deprecation," but this change will leave the asset in an over-depreciated state.  If you don't do anything else to the asset, it will continue to depreciate but it will depreciate early.

    If, for financial reporting purposes, you would prefer to force the asset to depreciate on time, change the depreciation method in the Internal book to RV.  That will "stretch out" the remaining value over its remaining life.

    In 2018, did you deduct any of the amount under Section 179 in your Tax book?  If so, this event may trigger some depreciation recapture.

  • I have had this and changed to RV which is consistent with GAAP treatment.