[Anonymous]

Hey guys, quick question. So I’ve seen a few conflicting questions in Becker when it comes to calculating the depreciation tax shield, but more specifically the depreciation itself. There will be an initial cost of investment, transportation-in, set-up costs, and so on. What I’m a little thrown off by is that I always thought those costs were capitalized with the cost of investment and depreciation is calculated based off that. However, I’ve seen a couple of questions now where there are these types of additional costs but they haven’t been included in the depreciation calculation and subsequently the tax shield. Let me try to give an example…

Initial cost of equipment: $500,000
Transportation and set-up costs for equipment: $20,000
Useful life: 5 years

Now what I have always done was to take BOTH the initial cost and additional costs, and divide that into my useful life (assuming no salvage value). However, I’ve seen a couple questions where they’re only calculating depreciation based off the initial cost of $500,000 and ignoring the additional costs. What do you guys think? Am I over thinking this or is there an underlying theme I’m missing?

Thanks!

[Anonymous]

I remember having some of the same issues u are having. Some of the problems have some weird wording such as “before” or “after” tax/depreciation. I remember the problems that had “after” meant I did not have to calculate the tax shield and the depreciation bc it was after (already calculated for me). It's confusing. But, I would always depreciate all of the Capitalized costs unless the problem states otherwise. Sometimes they will tell u depreciate the original amount or to depreciate the asset over three years when it had a 5 year useful life etc. In short, don't worry about it too much, pay attention to the weird wording , and capitalize and depreciate all relevant costs. There could be some errors in their software too. Goodluck!

[CPA so close, so far away]

I remember this as well. I took and passed BEC on Feb. 28th, so it wasn't too long ago. I remember for one of Becker's final exams, they had two questions dealing with depreciation tax shields and capitalized costs. The key is reading carefully. I'm pretty sure in one of the questions, the value they give you IS the capitalized cost, yet it doesn't clearly state that. The wording is very peculiar and it makes you think its just the cost of the equipment. When you hit the final exams, try to find those two questions and compare what/how they asked it. It will be a light bulb moment. You can also google it, as I found a post on Another 71 when I was having the same issue.

Good luck. It will click when you see the two different problems. It did for me.

[Tncincy]

If I understand your question, the transportation and set up fees should be included in the purchase price. It adds to the cost basis of the asset to be depreciated overtime. So if the question does not include the total cost of the asset, that would be for you to find the additional costs and include them,then calculate depreciation.

It begins with a 75
Been here too long as a cheerleader....ready to pass

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