Search results

1 – 10 of over 9000
Click here to view access options
Book part
Publication date: 5 October 2020

Malcolm A. Mueller, Frances A. Stott and Aaron B. Wilson

The purpose of this case is to allow students the opportunity to examine how the recent changes to depreciation incentives in the Tax Cuts and Jobs Act of 2017 (P.L…

Abstract

The purpose of this case is to allow students the opportunity to examine how the recent changes to depreciation incentives in the Tax Cuts and Jobs Act of 2017 (P.L. 115-97, Dec. 22, 2017) may affect the purchase of capital assets. Bonus depreciation has been extended to allow an immediate 100% deduction for eligible property, which also now includes used property. This bonus depreciation will be phased out over a nine-year period. Additionally, the progressive marginal tax rate used for business income has been eliminated and replaced by a flat 21% tax rate, representing a 14% drop in the tax rate on businesses.

Specifically, this case will examine how a change from 50% to 100% bonus depreciation affects purchasing decisions between asset classes, due to the exaggerated impact on the net present value for longer lived assets. In keeping with the evolution of accounting in academia, students will be asked both to solve a realistic problem and to communicate their investment decisions effectively. To prepare students for the assignment, the informational building blocks are presented in modules following Bloom’s taxonomy – culminating in the application of the concepts in a decision-making scenario. The learning method applied in this case has been tested in the classroom, with quantifiable results showing a positive learning outcome. Pre- and post-case assessment questions were administered with significant improvement in students reported understanding across all six measures. Based on these results, this case achieves the dual goals of teaching students how to apply the concept of bonus depreciation to maximize value and how to communicate this information effectively.

Details

Advances in Accounting Education: Teaching and Curriculum Innovations
Type: Book
ISBN: 978-1-83867-236-2

Keywords

Click here to view access options
Book part
Publication date: 4 December 2012

Terrance Jalbert and Gary M. Fleischman

This paper examines the optimal use of tax incentives relating to the Hawaii sales, use and excise tax. While many states offer exemptions to these taxes, Hawaii is the…

Abstract

This paper examines the optimal use of tax incentives relating to the Hawaii sales, use and excise tax. While many states offer exemptions to these taxes, Hawaii is the only known state that ties its excise tax credit to the depreciation method used on the state income tax return. Therefore, the purpose of this study is to use the Hawaii business tax context to illustrate the complex trade-offs and year-by-year analyses that small businesses often must employ in the presence of shifting federal tax policy that indirectly influences state tax structures because of tax coupling. Federal and Hawaii taxpayers can elect to expense depreciable property using the 179 expensing provision or to depreciate using the modified accelerated cost recovery system (MACRS). We develop a model that will help non-corporate small businesses in Hawaii determine their optimal tax cost recovery strategy: (1) Utilize Hawaii Section 179 immediate expensing on purchases of tangible personal property, or alternatively (2) Employ MACRS depreciation on these purchases combined with the Hawaii Capital Goods Excise Credit. Our modeling separately considers the possibility that the proprietor jointly makes the federal and Hawaii cost recovery decision, as well as the alternative possibility that these cost recovery decisions are made independently.

The study illustrates that the interaction of federal and state law differences exacerbated by frequent tax changes may cause significant tax compliance complexity and resulting confusion for small non-corporate business taxpayers who are generally not equipped to wrestle with such issues. From a policy perspective, states may wish to minimize complexity using coupling efforts with federal law or otherwise routinely revisit outdated state tax statutes that indirectly cause unintended tax consequences. States must be cognizant, however, that their own budget constraints may worsen if they fully couple with recent generous federal Section 179 expensing limits.

Click here to view access options
Book part
Publication date: 16 June 2008

Karen C. Miller, J. Riley Shaw and Tonya K. Flesher

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…

Abstract

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.

Details

Advances in Taxation
Type: Book
ISBN: 978-1-84663-912-8

Click here to view access options
Book part
Publication date: 18 September 2017

Carol MacPhail, Riza Emekter and Benjamas Jirasakuldech

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…

Abstract

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.

Details

Advances in Taxation
Type: Book
ISBN: 978-1-78714-524-5

Keywords

Click here to view access options
Article
Publication date: 1 March 2021

Jilnaught Wong, Norman Wong and Willow Yangliu Li

This paper aims to examine the financial statement impact resulting from the tax depreciation on buildings that was reinstated on 25 March 2020 as part of the New Zealand…

Abstract

Purpose

This paper aims to examine the financial statement impact resulting from the tax depreciation on buildings that was reinstated on 25 March 2020 as part of the New Zealand Government’s coronavirus (COVID-19) tax support package. The COVID-19 pandemic and the tax relief created an accounting response to map the environment to accounting reports, reversing previously recognized deferred tax liabilities and increasing reported income as a result.

Design/methodology/approach

This is an exploratory and descriptive study to understand the accounting response and impact on companies’ financial statements following a COVID-19 tax relief to support businesses in a dire financial situation as the effects of COVID-19 took hold.

Findings

First, the accounting response provided the appropriate mapping from the COVID-19 environment to accounting reports. Second, the financial statement impacts are material, especially for companies with extensive holdings of buildings that are held for use. Third, while the accounting relief was immediate, the economic (cash flow) support does not occur until a year later.

Research limitations/implications

The financial statement impacts are based on a subset of NZX 50 companies with the available information at the time of writing. However, they do not compromise the external validity of the findings because the tax depreciation relief applies to other listed companies, unlisted public and private companies, trust, partnerships and individuals.

Practical implications

The New Zealand Government could have been more helpful to businesses by allowing an immediate depreciation deduction in the 2020 year as opposed to implementing it from 2021. Further, it could have legislated a backlog depreciation deduction from 2010 – when the depreciation on buildings was disallowed – to 2020.

Originality/value

This paper documents the evolution of the accounting for deferred taxes when the New Zealand Government withdrew the tax depreciation in 2010, how NZ IAS 12 evolved as a result of that event and now the reversal effect with the reinstatement of the tax depreciation during COVID-19. The paper also blends in the accounting responses and considers whether they are opportunistic or efficient.

Details

Pacific Accounting Review, vol. 33 no. 5
Type: Research Article
ISSN: 0114-0582

Keywords

Click here to view access options
Article
Publication date: 29 May 2009

Colin Dey, John Grinyer, Donald Sinclair and Hanaa El‐Habashy

This paper aims to complement a more conventional positive accounting theory (PAT)‐based study of accounting method choice in Egyptian firms by examining three alternative…

Abstract

Purpose

This paper aims to complement a more conventional positive accounting theory (PAT)‐based study of accounting method choice in Egyptian firms by examining three alternative computational reasons for depreciation method choice: simplicity; compatibility with industry norm; and suitability for class of asset.

Design/methodology/approach

The paper draws on a questionnaire survey, sent to Egyptian companies, in which managers were asked to indicate their reasons for choosing depreciation methods as well as the actual depreciation methods used.

Findings

The paper finds that technical reasons were frequently given in survey responses from managers. However, the available evidence on the actual depreciation methods used by their firms and industries is in fact more consistent with PAT‐based theories of accounting choice than with such alternatives. This suggests that the responses to the survey reflected managers' rationalisations of decisions made for self‐interested purposes.

Originality/value

Most recent work on managerial decisions concerning accounting choices utilises data gathered from databases of published financial information and is undertaken within a PAT context. This study extends that approach by utilising the results of a questionnaire distributed in Egypt to test some additional hypotheses that reflect possible technical accounting reasons for justifying depreciation methods.

Details

Journal of Applied Accounting Research, vol. 10 no. 1
Type: Research Article
ISSN: 0967-5426

Keywords

Click here to view access options
Article
Publication date: 10 May 2011

Neil Crosby, Steven Devaney and Vicki Law

The paper addresses the practical problems which emerge when attempting to apply longitudinal approaches to the assessment of property depreciation using valuation‐based…

Abstract

Purpose

The paper addresses the practical problems which emerge when attempting to apply longitudinal approaches to the assessment of property depreciation using valuation‐based data. These problems relate to inconsistent valuation regimes and the difficulties in finding appropriate benchmarks.

Design/methodology/approach

The paper adopts a case study of seven major office locations around Europe and attempts to determine ten‐year rental value depreciation rates based on a longitudinal approach using IPD, CBRE and BNP Paribas datasets.

Findings

The depreciation rates range from a 5 per cent PA depreciation rate in Frankfurt to a 2 per cent appreciation rate in Stockholm. The results are discussed in the context of the difficulties in applying this method with inconsistent data.

Research limitations/implications

The paper has methodological implications for measuring property investment depreciation and provides an example of the problems in adopting theoretically sound approaches with inconsistent information.

Practical implications

Valuations play an important role in performance measurement and cross border investment decision making and, therefore, knowledge of inconsistency of valuation practice aids decision making and informs any application of valuation‐based data in the attainment of depreciation rates.

Originality/value

The paper provides new insights into the use of property market valuation data in a cross‐border context, insights that previously had been anecdotal and unproven in nature.

Details

Journal of European Real Estate Research, vol. 4 no. 1
Type: Research Article
ISSN: 1753-9269

Keywords

Click here to view access options
Article
Publication date: 25 April 2008

Andrew Baum and Steven Devaney

The purpose of this paper is to consider prospects for UK REITs, which were introduced on 1 January 2007. It specifically focuses on the potential influence of depreciation

Downloads
4805

Abstract

Purpose

The purpose of this paper is to consider prospects for UK REITs, which were introduced on 1 January 2007. It specifically focuses on the potential influence of depreciation and expenditure on income and distributions.

Design/methodology/approach

First, the ways in which depreciation can affect vehicle earnings and value are discussed. This is then set in the context of the specific rules and features of REITs. An analysis using property income and expenditure data from the Investment Property Databank (IPD) then assesses what gross and net income for a UK REIT might have been like for the period 1984‐2003.

Findings

A UK REIT must distribute at least 90 per cent of net income from its property rental business. Expenditure therefore plays a significant part in determining what funds remain for distribution. Over 1984‐2003, expenditure has absorbed 20 per cent of gross income and been a source of earnings volatility, which would have been exacerbated by gearing.

Practical implications

Expenditure must take place to help UK REITs maintain and renew their real estate portfolios. In view of this, investors should moderate expectations of a high and stable income return, although it may well still be so relative to alternative investments.

Originality/value

Previous literature on depreciation has not quantified amounts spent on portfolios to keep depreciation at those rates. Nor, to our knowledge, has its ideas been placed in the indirect investor context.

Details

Journal of Property Investment & Finance, vol. 26 no. 3
Type: Research Article
ISSN: 1463-578X

Keywords

Click here to view access options
Article
Publication date: 12 November 2018

Wei Sun and Gil Kim

The purpose of this paper is to examine the effects of exchange rate shock on the broad spectrum of the US economy using a factor-augmented VAR model (FAVAR).

Abstract

Purpose

The purpose of this paper is to examine the effects of exchange rate shock on the broad spectrum of the US economy using a factor-augmented VAR model (FAVAR).

Design/methodology/approach

The authors developed a two-factor FAVAR model and estimated it with the single-step Bayesian likelihood approach using the Gibbs sampling technique. The two factors represented, respectively, the economic activity and price pressures. The exchange rate shock was identified with the Choleski decomposition method for VARs. The authors used the data of 117 time series for the period from 1973:02 to 2007:12. Impulse responses and variance decompositions were computed as the main results.

Findings

The authors found that exchange rate shock has pervasive effects on the US economy as the following: depreciation does not appear to help reduce the US trade deficit as both import and export rise with the depreciation shock; in the short run, depreciation appears expansionary as industrial production, manufacturing and employment all increase within a year; in the medium run, depreciation appears inflationary, as consumer price, producer price, import price and export price all increase; and in the medium run, depreciation appears contractionary as personal consumption, consumer confidence, stock price and housing start tend to fall.

Research limitations/implications

Some caveats remain: first, our simple model symmetrically estimates depreciation shock and appreciation shock and, hence, cannot draw inferences for how exchange rate appreciation and depreciation may affect the US economy asymmetrically. Second, the simple model used did not distinguish the different possible sources of exchange rate depreciation shock, the knowledge of which may lead to richer policy implications and is the direction of research for the future.

Originality/value

This research contributes to the literature of whether exchange rate is expansionary or contractionary to the US economy using the FAVAR model. This is the first comprehensive study in the literature studying the pervasive effects of the exchange rate on the broad spectrum of the US economy in one integrated model.

Details

Journal of Economic Studies, vol. 45 no. 6
Type: Research Article
ISSN: 0144-3585

Keywords

Click here to view access options
Article
Publication date: 29 July 2014

Sylvain Weber

The purpose of this paper is to investigate the link between human capital depreciation and education level, with an emphasis on potential differences between general and…

Downloads
2044

Abstract

Purpose

The purpose of this paper is to investigate the link between human capital depreciation and education level, with an emphasis on potential differences between general and specific education.

Design/methodology/approach

A nonlinear wage equation, based on Arrazola and de Hevia's (2004) model, is estimated using data from the Swiss Labor Force Survey (SLFS) over the period 1998-2008, in order to estimate a human capital depreciation rate for several education groups.

Findings

Human capital depreciation is significantly related to education type. Academic (“concept-based”) education protects workers more effectively against depreciation than vocational (“skill-specific”) education.

Research limitations/implications

The SLFS survey is a rotating panel of five years and no retrospective data on earnings and employment are provided. A study of lifecycle earnings like the one proposed here would clearly benefit from a longer individual observation period.

Practical implications

In all educational tracks, even vocational ones, a substantial time share should be devoted to the acquisition of general skills. Moreover, it is necessary to manage lifelong learning carefully in order not to waste initial investments in education.

Originality/value

Instead of using a purely quantitative approach to separate workers by years of education, qualitative aspects of educational system are taken into account. Taking advantage of the Swiss educational system characteristics, workers are separated on the basis of their education type. Workers with vocational education (apprenticeships, professional and technical schools and universities of applied sciences) are assumed to possess a relatively specific human capital, compared to those with academic education (high schools and universities).

Details

International Journal of Manpower, vol. 35 no. 5
Type: Research Article
ISSN: 0143-7720

Keywords

1 – 10 of over 9000