Re: On accounting and engineering.(Slightly offtopic)

["Randy Brukardt" <randy@rrsoftware.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.