Re: On accounting and engineering.(Slightly offtopic)

[dewar@gnat.com (Robert Dewar)]

"Randy Brukardt" <randy@rrsoftware.com> wrote in message news:<um7r10d6be2cdf@corp.supernews.com>...
> Adrian Hoe wrote in message <3d62faa5_2@news.tm.net.my>...
> ...
> >When you purchase a pc and a software package, you pay an amount of
> >money say ($20k, $10k for hardwrae and 10k for software). The
> >accountant will credit the bank/cash account but 20K does not go into
> >expenses. This is not expenses. This is an asset. Credit the asset.
> >Depreciation tells you how much residue value of your asset at the
> >time. Hardware usually has 40% of depreciation so that the equipment
> >can be fully depreciated on the book in 2.5 years. This is due to how
> >fast the computer technology advances. Almost every 9-18 months will
> >have new products coming. So, you will have something like:
> >
> >1st year hardware = $10K
> >2nd year hardware = $6K
> >3rd year hardware = $2K
> >3.5rd year hardware = $0
> >
> >
> >This issue is reflected diffrently in a developer and end-user company.
> >
> >For a developer, say you buy an Ada83 compiler in 1992 for $10K. But
> >in 1995, Ada95 becomes the new standard and you wish to migrate to
> >Ada95 and port all applications to Ada95. The moment you acquire Ada95
> >compiler and stop using Ada83 in 1995, the asset value (Ada83
> >compiler) becomes zero immediately. Why? Because you write it off from
> >your book. This becomes an expenses. Credit Asset and debit expenses
> >or depreciation. Within 1992 and a day before you acquire Ada95 in
> >1995, Ada83 compiler was your asset and it was registered in your
> >book. It is a different case for your Sun Workstation SPARC5 (for
> >example). You purchased it in 1992 at a price of $10K (for example).
> >In mid of 1995 (2.5 years), it has been fully depreciated. But if you
> >continue to use it, it is still your asset and the accountant will
> >re-value it at a much lower rate. This is true in the case of Ada83
> >compiler if you still continue to use it even after you acquire Ada95
> >compiler, but the value stays (because there is no dpreciation).
> 
> 
> If you are a large company and you try that sort of accounting, you go
> to jail (see Enron, Worldcom, et. al.) Hiding expenses as assets is
> frowned upon.
> 
> If you are a small company and you try that sort of accounting, you
> probably will end up either overpaying your taxes (expenses reduce your
> income and thus your taxes, assets do not) or paying significant
> penalties. (There is defined depreciation schedule for software for tax
> purposes.) Some companies keep separate books for tax and 'regular'
> purposes, but that appears sleazy at best.
> 
>                            Randy Brukardt.

> If you are a large company and you try that sort of
> accounting, you go to jail (see Enron, Worldcom, et. al.) 
> Hiding expenses as assets is frowned upon.

Legal advice is always dubious on this newsgroup. Appallingly ignorant
and incorrect legal advice is
really annoying. Randy, please don't guess about
things you know nothing about. You obviously have
not the foggiest idea how items are categorized
as expenses or assets. Of course hardware
acquisitions are assets and not expenses. All I
can say is that I hope

  a) you have a competent accountant taking care of
     this sort of thing for you.

  b) you don't pay attention to what the accountant
     is doing (note that if you were CEO of a big
     company that would be unwise since you have to
     certify the results).

In fact the situation is exactly the opposite. Trying to
treat assets as expenses would be tax evasion. This is
indeed the opposite kind of thing from what Enron was
doing, which was an attempt to maximize profits.

I suggest that everyone leave this sort of thing to
accountants and not pay any attention to what Randy or
I or anyone else says on a newsgroup which is supposed
to attract expertise in Ada rather than in accounting.

P.S. An entertaining story from quite a while ago with my
personal taxes was that I had listed hardware and software
items that were potentially deductible. My accountant set up to
depreciate the hardware over 5 years (the quickest
allowed, since I was not a company and could not use accelerated
depreciation, which I think is what the 2.5 years mentioned earlier in
this group is about). But when it came to software, he said "Well that
stuff is all junk,
you probably couldn't use any of it, we will write that
off and treat it as expenses, my shelf is full of completely useless
software that I have purchased!"

:-)