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Depreciation – Straight Line

From an economic and taxation perspective, the accounting concept refers to the annual decrease in dollar value of tangible assets  whether they are being used or idle, and whether they have a salvage value or not. In this scheme, the anticipated expected life of the assets are predetermined to be 3, 5, 10, 15, 20 27.5 and 39 years.  In this scheme, maintenance is taken as a percentage of the calculated straight-line depreciation amount, starts low, and increases each year.  Neither calculations are in fact related to reality.

From this perspective, depreciation is calculated for tax purposes, with the dollar amount equivalent to the maximum allowable reduction in income tax.  This definition has little to do with deterioration or obsolescence.

Straight-line accounting is interpreted to mean that no money for a component can be shared with another component.

Compared to a cashflow based approach to reserve fund planning, straight-line planning allows a corporation to tweak its tax planning.

For example, if a corporation expects higher income in future years, it can use straight-line depreciation for modelling income to be less in the immediate future. Straight-line depreciation thus yields larger income amounts in future years.

In a straight-line scenario, 100 percent of the depreciation is allotted by the expected lifespan of the component (100 percent/16=) or 6.25 percent per fiscal-year. If the component is 9 years old, then the accumulated depreciation is (6.25% x 9=) or 56.26 percent and the reserve requirement is thus the cost times the accumulated depreciation ($13,628 x 56.26%=) or $7,666.

REIC CRP reserve fund planning benchmarked scenarios do not tweak expenditures and do not stray from the functional approach, with its fiscal-year based modelling of all variables considered all-at-once.

 

About Author: Jean-François

With experience gained in construction, project management, field reviews, inspections, report writing and as strata president, J.-F. has cross-industry expertise guaranteeing that you will participate in a process geared to improving the corporation's finances and to setting the condo | strata board | council's planning to stand the test-of-time.