Chapter 7 - Property Acquisitions and Cost Recovery Deductions. Flashcards
Define Adjusted Basis
The initial tax basis of an asset reduced by cost recovery deductions allowable with respect to the basis.
Define Amortization
The ratable deduction of the capitalized cost of an intangible asset over its determinable life.
Define Bonus Depreciation
Accelerated deduction in the year placed in service of 50 percent (or 100 percent) of the cost of qualified tangible personal property.
Define Capitalization
An accounting requirement that an expenditure be charged to a balance sheet account rather than against the firm’s current income. This creates an asset.
Define Costs Basis
The purchase price of an asset including any sales tax paid by the purchaser and any incidental costs related to getting the asset in place and into production.
Define Cost of Goods Sold
The capitalized cost of inventory sold during the taxable year and subtracted from gross receipts in the computation of gross income.
Define Depreciation
The systematic deduction of the capitalized cost of tangible property over a specific period of time (their estimated useful life). As a result, the cost of an asset is expensed over the years in which the asset contributes to the firm’s revenue generating activity.
Define Expansion Costs
Costs of enlarging the scope of operations of an existing business.
Define FIFO
The inventory costing convention under which the first goods manufactured or purchased are assumed to be the first goods sold.
Define Going-Concern Value
Value attributable to the synergism of business assets working in coordination.
Define Goodwill
Value created by the expectancy that customers will continue to patronize a business.
Define Half-Year Convention
Property placed in service on any day of the taxable year is treated as placed in service halfway through the year for MACRS purposes.
Define Leasehold Costs
Up-front costs incurred to acquire a lease on tangible business property.
Define Leasehold Improvements
Physical improvements made by a lessee to leased real property
Define Leverage
The use of borrowed funds to create tax basis.
Define LIFO
The inventory costing convention under which the last goods manufactured or purchased are assumed to be the first goods sold.
Define Midmonth Convention
Property placed in service on any day of the month is treated as placed in service at the midpoint of the month for MACRS purposes
Define Midquarter Convention
Property placed in service on any day of a quarter is treated as place in service at the midpoint of the quarter for MACRS purposes.
-Compute depreciation separately for EACH quarter’s acquisitions using mid-quarter tables.
Define MACRS
Modified Accelerated Cost Recovery System - The statutory and regulatory rules governing the computation of depreciation for tax purposes.
Every depreciable asset is assigned to one of 10 recovery periods. For the most part, the MACRS recovery period is shorter than the asset’s estimated useful life.
! - This is used only in the tax depreciation, not necessarily the book depreciation.
Define Organizational Costs
Expenditures incurred in connection with the formation of a partnership or corporate entity.
-This includes legal and accounting fees attributed to the formation and any filing or registration fees required under state or local law.
Define Passenger Automobiles
Four-wheeled vehicles manufactured primarily for use on public roads with an unloaded gross vehicle weight of 6,000 pounds or less.
Define Percentage Depletion
An annual deduction based on the gross income generated by a depletable property multiplied by a statutory depletion rate.
Define Recovery Period
The number of years prescribed by statute over which the basis of tangible business property is depreciated under MACRS.
Define Research and Experimental Expenditures
A preferential deduction for costs of basic research designed to encourage business to conduct such research.