I'm not qualified to answer that question. If you also capitalized 100
million dollars worth of routers, servers, backhauls and APs, I don't see
why not. After all, you wouldn't depreciate cabling and J-pipes no much you
spent on them in aggregate. If you had thousands of employees and bought a
stapler for each of them, you would still expense those staplers under
"Office Supplies". But if you bought them all desktop computers, those
would probably be capitalized. I'm not sure about a $200 tablet computer,
that kind of sounds like capital, but the $500 minimum is pretty common.
If your business model is mainly deploying CPE without other infrastructure,
that might be different. Like let's say you buy, install and own solar
panels on customer houses, and your business model is the customer gets free
electricity and you sell the excess to the grid. You would probably have to
treat those solar panels as long term fixed assets.
There are several things driving this decision. Generally accepted
accounting principles, especially if your company's books will be audited.
And of course tax law, the IRS wants to make sure you aren't expensing
things that should be depreciated in order to offset income and avoid paying
income tax. You want your income statement and balance sheet to be
realistic to support good management decisions. And if you want a loan, or
investors, or to sell the business, those numbers will have to survive
scrutiny.
My logic in not wanting to carry CPE as assets on the books is they are
spread all over at locations not under my control, they can get damaged or
lost or not returned when a customer cancels. If I'm carrying them as an
asset and depreciating them, and I have to replace them due to damage, or
write them off because they don't get returned, cleaning up the paperwork
isn't worth the trouble. You would have to write down the asset, stop
depreciating it, and write off the loss. It's just not worth it for a CPE
costing $50 to $300.
Also, if local government wants to see your books, and you are carrying
10,000 CPE radios as assets, won't that make them more likely to assess
property tax?
If your business model has most of your investment going into hardware at
customer locations, there might be ways to sidestep the issue. Like getting
the customer to buy the equipment, or leasing it so that you expense the
lease payments rather than owning it.
But if you really anticipate owning $100 million of CPE, you should consult
an accountant and a tax attorney.
-----Original Message-----
From: Simon Westlake
Sent: Saturday, December 12, 2015 9:58 AM
To: [email protected]
Subject: Re: [AFMUG] Calculating depreciation
Can you get away with that on a big purchase though? Or is it because
you are buying it in small quantities?
E.g. if I buy 100 million dollars worth of CPE, I can't imagine I'd get
away with expensing it.
On 12/11/2015 11:47 PM, Ken Hohhof wrote:
I have an asset item called "equipment" and an expense item called "non
capital equipment". If it costs less than $500 each or is likely to be
gone, retired or used up before it can be depreciated, it gets expensed
not depreciated. I am reluctant to capitalize CPE. Routers, servers,
APs, backhauls get capitalized if they cost >$500. My accountant has not
complained.
If I purchase something other than equipment, like a vehicle or a
building, it goes in its own asset category and my accountant decides what
depreciation schedule is appropriate. I suppose some big piece of
software might get depreciated, I wouldn't know.
Not sure we are handling financed equipment properly. Typically I have 3
year $1 buyout leases, I don't own it for 3 years, and then it appears to
be worth $1. With a fair market value buyout, I guess you could take that
and depreciate it, but I would probably argue with my accountant about a 5
year depreciation schedule on equipment that is already 3 years old.
Other special categories would be stuff like "goodwill" and intellectual
property. I guess when you pay $1000 per sub for a WISP whose hard asset
have a book value of $1.58, the rest is goodwill and gets depreciated.
Then there's Section 179.
-----Original Message----- From: Simon Westlake
Sent: Friday, December 11, 2015 10:16 PM
To: [email protected]
Subject: Re: [AFMUG] Calculating depreciation
How are you defining 'like' assets? Would you group together things like
routers and access points? Or are you getting more specific than that?
On 12/11/2015 10:14 PM, Chuck McCown wrote:
There are lots of depreciation methods. Straight line, accelerated, mass
depreciation.
When you acquire assets over time it it is a pain in the ass to have a
schedule for each item.
Mass allows you to throw all like assets into a common pot and take a
percentage of the pot as depreciation expense each year.
That way you don't have to track when they enter.
-----Original Message----- From: Simon Westlake
Sent: Friday, December 11, 2015 8:54 PM
To: [email protected] ; [email protected]
Subject: [AFMUG] Calculating depreciation
When you depreciate your fixed assets, what method do you use to
calculate it?
--
Simon Westlake
Skype: Simon_Sonar
Email: [email protected]
Phone: (702) 447-1247
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