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The purpose of this paper is to examine the use of accelerated depreciation deductions, which includes Section 179 and bonus depreciation, taken in the first year of asset life by Michigan farms. The frequency, value and influence of accelerated depreciation on farm investment are also analyzed.

Accrual adjusted income statements, balance sheets, depreciation schedules, and income tax information for 66 Michigan farms from 2004 to 2014 provide data for the analysis. The present value of the accelerated deduction and change in the cost of capital were calculated. Finally, investment elasticities were used to arrive at the change in investment due to accelerated depreciation.

Accelerated depreciation was utilized across all applicable asset classes. Section 179 was used more often than bonus depreciation in part because it was available in all the examined years. Based on actual farm business use, accelerated depreciation lowered the cost of capital for the operations resulting in an estimated increase in investment of 0.27 to 11.6 percent depending on asset class.

The data utilized are of a detail not available in previous investigations which used either aggregate data or estimated rather than the observed use of accelerated depreciation. This analysis reveals that accelerated depreciation as used by commercial farms lowers the cost of capital and thus encourages investment particularly in machinery and equipment.

The use of corporate aircraft has increased as businesses place more value on ease of mobility. The bonus depreciation incentives of 2002 and 2003 provided growth opportunities for the general aviation market by allowing accelerated depreciation deductions for the purchase of new corporate aircraft. These incentives allowed more than twice the traditional MACRS allowance for depreciation for the first year of operation of an asset, but the present value of the tax savings after the full depreciable life of the corporate aircraft only generated a 3.25 percent reduction in the after-tax-cost. This study documents that the bonus depreciation incentives did not generate significant growth in the general aviation aircraft market via increased production of aircraft. These incentives may have simply slowed the recession that might have taken place in this industry otherwise. However, the incentives in this study did play a significant role in determining which type of aircraft to purchase, piston or turbine.

The purpose of this paper is to provide empirical support for micro‐economic theory respecting debt capacity and develop a practically useful model for assessing debt capacity for firms seeking to minimize credit risk and the cost of debt (interest rate).

Theoretically important factors explaining the variation in debt capacity are identified and tested, namely: the proportion of property, plant and equipment over total assets, industry group (highlighting asset specificity), sales variability, and the depreciation method. Data were collected from the SEC Disclosure Database. Using the SPSS software, this paper's theoretically based constructs were tested by developing a linear regression model.

The regression results indicate that the theoretical model explains a statistically significant portion of the variation across firms in the proportion of debt to total assets a firm is willing (and is allowed by the financial market) to carry. However, a major portion of the variation in debt capacity is not explained. Future research can identify and test other factors to develop a better explanatory model.

Subject to the above limitation, the model developed provides a basis for firms to assess their debt capacity. Firm's whose actual debt to asset ratio is less than their debt capacity can borrow more if needed and if additional leverage is justified. Creditors can also use the estimated debt capacity when deciding the terms (including the interest rate) of extending credit. Investors can shy away from companies with very little or no unused debt capacity to reduce their portfolio risk.

This paper's academic and practical contributions, respectively, are to empirically test debt capacity's theoretical constructs and provide a practically useful and theoretically based model for assessing debt capacity by creditors, investors, and the companies.

Bonus depreciation was enacted by the United States Congress and signed into law in 2002 largely in response to the economic malaise that engulfed the U.S. economy after the September 11, 2001 terrorist attacks. We investigate whether bonus depreciation, a capital asset expensing allowance under the U.S. federal income tax code, impacts the level of business investment in property, plant, and equipment in the time periods that followed 9-11 in comparison to other earlier time periods. Based on the empirical evidence, the bonus depreciation policy has a positive effect on capital expenditures only in the period in which this policy was legislatively anticipated, specifically the period spanning the last quarter of 2001 and the first quarter of 2002. Otherwise, we find no significant increase in capital expenditures during the period that this special depreciation provision policy is initially in place from 2002 to 2005. Although bonus depreciation is re-enacted in response to the fiscal distress and recession that began in 2007, capital expenditures actually decline during the recovery era, a period following the post-2008 subprime mortgage crisis. Though Congress continues to temporarily re-enact bonus depreciation on an annual basis through December 31, 2014, there is no strong evidence that capital investment is positively impacted. Instead, the empirical results show that factors that positively affect the level of companies’ capital expenditures include capital intensity, cost of capital, amount of cash holdings, changes in sales and loans. Our empirical results invite the question of Congress’ intended goal in re-instating bonus depreciation for 2015 through 2019.

When a small business purchases a capital asset, its cost for tax purposes is spread over the useful life of the asset through the process of depreciation. It has become common in the USA for policy makers to enhance depreciation rules in an effort to increase business investment in a less-costly manner than across-the-board marginal tax rate cuts. Indeed, short-term depreciation policies are often billed by policy makers as a way to save America's small businesses. However, little is known about the actual effects of depreciation policies on small business activity. This paper aims to discuss these issues.

In this initial attempt to test the political claims regarding the importance of depreciation rules, the paper uses a 12-year panel of tax returns for Schedule C sole proprietors to empirically examine whether more generous depreciation policies influence small business activity at the extensive margin. Specifically, the paper estimates a series of multivariate models to explain sole proprietors’ decisions to remain in business as functions of their financial, demographic, and tax situations, including measures of the present discounted value (PDV) of a stream of tax deductions for depreciated capital under various rule structures.

Throughout the analysis, the authors are unable to find evidence that favorable depreciation rules lead to greater rates of entrepreneurial longevity among Schedule C sole proprietors.

Discrete choice results suggest that increases in the PDV of tax reductions from depreciation (e.g. depreciating the value earlier in the recovery period) might actually lead to higher probabilities of small business exit, while survival analysis finds no clear influence of depreciation on spells of small business activity.

US taxing authorities allow property investment to be separated into components. The purpose of this paper is to demonstrate how the classification of property affects the amount and timing of depreciation. Increased and accelerated depreciation increases after-tax cash flows and investor returns.

This paper explains traditional methods to analyze real estate investments and introduces modified methods that include the effect of taxes to improve the estimate of the potential return to the investor. Commonly used property classification methods are evaluated and projections are used to demonstrate the impact on investor returns.

Modified methods may improve return estimates and appropriately classifying property improves investor returns.

After-tax cash flows should be used to analyze potential real estate investments and properties should be accurately classified to maximize returns.

This paper demonstrates how to analyze real estate investments and maximize returns.

The purpose of this work is to analyse both from a theoretical and an empirical point of view the reversal of positive and negative temporary differences in Spanish firms and, derived from the reversal, to question whether the comprehensive allocation or the partial allocation of temporary differences is more or less profitable for firms.

The audited annual accounts of the firms registered in the Comisión Nacional del Mercado de Valores – the Spanish version of the SEC – during the periods 1996, 1997 and 1998 were analysed. To analyse the differences obtained, the sample was first disaggregated into different groups, according to whether the differences were positive or negative temporary reversed. A calculation was made of some descriptive statistics together with an analysis of both the mean and the variance, which made it possible to draw robust conclusions on the way Spanish firms report their positive and negative temporary differences reversed.

The paper provides information about the positive and negative temporary differences reversals by year (1996, 1997 and 1998) and by sector of activities (energy and water, construction, transport and communications, real estate and others) in the sample period and compares them over time.

The highest percentage corresponds to “other negative and positive temporary differences reversals” including those cases where firms do not specify which type of operation has motivated the difference and use the comprehensive allocation of temporary differences; it is very difficult to follow up all the future reversals.

A very useful source of information for Spanish firms and for investigators in this subject.

This paper is pioneering in the analysis of the reversal of temporary differences in Spanish firms, as well as in determining whether the use of the comprehensive or partial tax allocation of temporary differences is more or less appropriate.

The relationship between accounting and fiscal rules has long been controversial. Financial statements conform to accounting principles and methods regardless of tax rules. This independence generates important permanent and temporary differences between accounting and taxable income. The paper analyses the behaviour of listed Spanish firms in this accounting‐taxation relationship 1996‐1998, the extent of introduction of the inter‐period income tax allocation method, and the number and types of permanent and temporary differences reported. Most firms adopt the income tax allocation method, and report the differences, although they do not always specify which transactions provoked them. Among the long list of operations that generate differences, the most frequent are income tax expense, welfare schemes, provision for pensions, monetary correction, accelerated depreciation, or exemption for reinvestment. Although the number and kind of differences vary through time, the variation is not statistically significant. This is the first study analysing such differences for a European Union state.

The study aims to investigate the impact of indirectly evoked incentives, in the form of supervisor’s preferences, on the decision about accounting policy regarding depreciation method selection and to examine subsequent post-decision distortion by evaluating the depreciation method.

The authors conducted two experiments with control and treatment groups, manipulating the supervisor’s indirectly evoked preferences. In Study 2, the authors also measured the evaluation of both depreciation methods to investigate post-decisional distortion regarding the assessment of the depreciation method chosen in a decision task. Study 1 was conducted among 85 accounting students, while Study 2 consisted of 200 accountants.

Both studies revealed the significant impact of supervisor’s indirectly evoked preferences on accounting policy decisions. Participants who were aware of supervisors’ preferences were more likely to choose the depreciation method that was consistent with those preferences. The authors also found that those participants attached a higher value to the depreciation method, providing evidence that adherence to the supervisor’s preferences results in a distorted assessment of the depreciation methods.

First, this study shows that indirectly evoked supervisors’ preferences may lead to a departure from substantive criteria resulting in low-quality accounting outcomes. Second, the assessment of the depreciation method is inseparable from the situational context, as the evaluation of the depreciation method is interdependent upon the preferences of the choice of a depreciation method and the fulfillment of those preferences.