Establishing equip value for depreciation

[RBHII]

Would anyone be able to offer their opinion on how you established the value of equip. for depreciation purposes, when buying an existing mat? I've talked about it with my accountant, seems to be no right/wrong answer, but am curious as to what others have done....seems like such a critical issue to not have black and white rules!

[Anonymous]

Do whatever you want, you only need to be able to defend it if you are audited :)

What you want to do is maximize the value of the equipment and minimize improvements and have goodwill almost zero - from a buyers perspective. You should reach an agreement with the seller as there is an IRS form that both buyer and seller are supposed to fill out (separately) and there is always the very slim chance that they will match the two up.

[MSKLAUNDRY.]

Kirby, Wouldn't the higher the purchase price of the equipment cause a higher sales tax due, upfront??? So shouldn't you strike a balance between goodwill and equipment value?

Any CPA's here? Jonathan?

[Coinwash]

The buyer point of view,
the more allocated to the hard asset i.e. machinery and furniture and fixtures etc the more you can write off as depreciation. Goodwill goes right to the balance sheet but does not get written off as expense.


Just curious how does sales tax figure in valuing the equipment if any? Does it make any sense to value it less if there is sales tax due? Or does it pretty much cancel out with some other deduction or write off or whatever.

the right legal way is to value the asset at it's true value ( actual cost) and depreciate that amount.

The best way is to get as much assets as possible and not so much good will.

[Anonymous]

Kirby, Wouldn't the higher the purchase price of the equipment cause a higher sales tax due, upfront??? So shouldn't you strike a balance between goodwill and equipment value?

Any CPA's here? Jonathan?

Marc, good question I forget how that is handled. I'm not sure if in NJ there was sales tax on the equipment purchase as it was part of an overall business purchase. If sales tax is involved then you need to factor in the net impact of all taxes to see what the best way to play the game is.

[MSKLAUNDRY.]

Exactly my point. Careful calculations are needed and good understanding of the tax law and accounting procedures are in order.

[pete f]

The buyer point of view,
the more allocated to the hard asset i.e. machinery and furniture and fixtures etc the more you can write off as depreciation. Goodwill goes right to the balance sheet but does not get written off as expense.




the right legal way is to value the asset at it's true value ( actual cost) and depreciate that amount.

The best way is to get as much assets as possible and not so much good will.


The "actual cost" is the price you are willing to buy it for from the seller, not the resale cost as a used piece of equipment. I have a form I use when buying mats, I list out the equipment and assign a value to each piece, and the seller and I sign it. I do load up the pricing on the equipment. A 10 year old toploader is worth about $75. BUT, in an operational mat making money, it is worth $200. A 15 yr old dryer is worth about $100, but installed and operating in a mat it is worth at least $500. I do not know about the sales tax issues, we don't have that. There is an intangible tax that is paid every year, and based on your cost. Most likely if you have a higher value, the county has been deprecation it anyway for years, they do not re-assess you for a higher sales amount. Talk to your accountant to see what is the best way to determine values. No seller has every said no to the values I asked to use.

[laundryboy]

Pete has it right. The equipment list with values should be made part of the purchase contract as an exhibit. The price you pay for the business (assets) will be broken down into FFE (Furniture, Fixtures, and Equipment), Inventory (supplies and resale), Goodwill, and Non-compete. The total of these items will be the price you pay.

The equipment list (to protect yourself) should list the make, model, serial numbers, and value (the price you are paying). Make sure you do a UCC search for loans secured by the equipment - especially if newer. The serial numbers give you a little protection if a claim is made by a 3rd party. This may sound like overkill but it is protection and will only take an hour to list. The equipment list values (summed) WILL equal the "Equipment" portion of the purchase price. This will be your starting basis for your accountant and depreciation. Also, the contract will be used to complete IRS form 8594 (mentioned in prior post).

Pete is right-on about the value YOU agree to for equipment. You might find an identical used washer for $900 but, installed in a cash producing operation it will have a value to you of 1250.00.

[Coinwash]

Buyers and sellers will always see things very difference

There must be a meeting of the minds to get the best deal for both parties to make a sale.

Do you home work, That is why Coinwash.com is here!!!!;)