TOPIC 5: DEPRECIATION AND TAXES AMORTISMAN VE VERGILER

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TOPIC 5 DEPRECIATION AND TAXES(AMORTISMAN VE
VERGILER)
DEPRECIATION IS THE PROCESS OF ALLOCATING TO
EXPENSE THE COST OF THE L-T ASSET OVER ITS USEFUL
LIFE OR IT IS THE REDUCTION IN VALUE OF AN ASSET
WITH TH PASSAGE OF TIME ND USE.
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• CAUSES OF LIMITED USEFUL LIVES
• PHSICAL DETERIORATION
• OBSOLESCENCE

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FACTORS THAT AFFECT THE COMPUTATION OF
DEPRECIATION

• COST PURCHASE PRICE ALL EXPENDITURES TO GET
  THE ASSET IN PLACE READY FOR USE
• RESIDUAL/SALVAGE/DISPOSAL VALUE AN ASSETS
  ESTIMATION NET SCARP VALUE
• DEPRECIABLE VALUE COST- SALVAGE VALUE
• ESTIMATED USEFUL LIFE TOTAL NUMBER OF SERVICE
  UNITS EXPECTED FROM AN ASSET SERVICE UNITS MAY
  BE MEASURED IN TERMS OF YEARS THE ASSET IS
  EXPECTED TO BE USED. MILES EXPECTED TO BE DRIVEN,
  UNITS EXPECTED TO BE PRODUCED ETC.

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• BOOK VALUE/CARRYING VALUE COST ACCURED
  DEPRECIATION UNEXPIRE PART OF THE COST OF THE
  ASSET.

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• DEPRECIATION IS RECORDED AT THE END OF THE
  ACCOUNTING PERIOD.
• DEPRECIATION EXPENSE IS DIFFERENT FROM OTHER
  EXPENSES BECAUSE IT DOES NOT INVOLVE CASH
  PAYMENT IT IS A NONCASH EXPENSE THAT AFFECTS
  INCOME TAXES SO WE MUST CONSIDER IT PROPERLY WHEN
  MAKING AFTER-TAX ENGINEERING STUDIES.

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METHODS OF COMPUTING DEPRETIATION

• STRAIGHT-LINE METHOD (NORMAL AMORTISMAN)
• DECLINING BALANCE METHOD (AZALAN ARTANLAR
  YÖNTEMI)
• OTHERS

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STRAIGHT-LINE METHOD
DEPRECIATION DEPENDS ONLY ON THE PASSAGE OF TIME
THE RATE OF DEPRETIATION. IT IS THE SAME IN
EACH YEAR. DEPR. EXPENSE IS THE SAME ALSO. DEPR.
EXP COST/ EUL or COSTDEPR.
RATE DEPR. RATE AT TIME t1/EUL
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UNDER TURKISH LAW (VERGI USUL KANUNU) DEPR. RATES
FOR VARIOUS ASSETS CAN BE DETERMINED BY THE CO.
AS LONG AS THE RATE IS lt 20. HOWEVER, FOR LAND
AND BUILDINGS AND FOR THOSE ASSETS FOR WHICH THE
RATE CAN BE gt20, THE MINISTRY OF FINANCE
ANNOUNCES THE APPROPRIATE RATE.
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EXAMPLE

• COST OF THE ASSET40106 TL
• SALVAGE VALUE 0
• DEPR. RATE 20 a 201/5 a
• EUL 5 YEARS
• DEPR. EXPENSE/ YEAR ?

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(No Transcript)
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DECLINING-BALANCE METHOD
ASSUMPTION MANY ASSETS ARE MOST EFFICIENT WHEN
NEW. DEPR. IS RELATIVELY LARGE IN EARLY YEARS AND
SMALLER IN LATER YEARS. DEPR. EXPt BOOK
VALUEtDEPR.RATE
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UNDER THE TURKISH LAW DEPR. RATE IS TWICE THE SL
RATE BUT MAX RATE IS 40. THEN THE METHOD IS
USUALLY CALLED THE DOUBLE DECLINING-BALANCE
METHOD.
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EXAMPLE
COST OF THE ASSET40,000,000 TL SL DEPR.RATE
20 DDB RATE20240 EUL201/5 a 5
YEARS SALVAGE VALUE IS IGNORED.
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YEAR DEPR. EXP. ACC.DEPR. BOOK
VALUE 0 - -
40 1 404016 16
40-1624 2 24409.6
25.6 40-25.614.4 3
14.4405.76 31.36 40-31.368.64 4
8.64403.456 34.816 40-34.8165.184
5 5.184 40
- DPER. IN THE LAST YEAR IS THE AMOUNT
NECESSARY TO REDUCE THE BOOK VALUE TO ZERO.
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THERE ARE OTHER METHODS LIKE THE PRODUCTION
METHOD BUT UNDER TURKISH LAW, METHODS 1AND 2 ARE
ALLOWED. THE LAW (MADDE 320) ALLOWS A CO. TO
SWITCH FROM DECLINING BALANCE TO SL DEPR. METHOD
BUT NOT VICE VERSA.
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EXAMPLE

• IN THE FIRST 2 YEARS DDB METHOD IS USED,
  THEN THE CO. SWITCHES TO SLD METHOD.
• YEAR DEPR. EXP. ACC. DEPR. BOOK
  VALUE
• 404016 16
  40-1624
• 24409.6 25.6 14.4
• 14.4/34.8 30.4
  4.8
• 4.8 35.2
  4.8
• 4.8 40.0
  -

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DEPRECIATION FOR PARTIAL YEAR WHEN AN ASSET IS
BUGHT SOMETIME DURING THE YEAR, DEPR. EXP. IS
COMPUTED AS FOLLOWS
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EXAMPLE
YOU BOUGHT THE ASSET ON JULY, 2000 FOR 40,000,000
TL. YEAR DEPR. EXP. ACC.DEPR.
BOOK VALUE 2000 (4020)6/124 4
40-436 2001 40208
12 28 2002 8
20 20 2003
8 28
12 2004 8 36
4 2005 (4020)6/124
40 -
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DEPLETION METHODS

• DEPLETION, THOUGH SIMILAR TO DEPRECIATION, IS
  APPLICAPLE ONLY TO NATURAL REOURCES.
• COST DEPLETION
• PERCENTAGE DEPLETION

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DEPRECIATION DOES NOT RESULT IN THE ACTUAL CASH
FLOW DIRECTLY. IT IS A BOOK METHOD BY WHICH THE
CAPITAL INVESTMENT IN TANGIBLE PROPERTY IS
RECOVERED. THE ANNUAL DEPR. AMOUNT IS TAX
DECUCTIBLE.
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BASICS OF INCOME TAXES

• INDIVIDUALS AND CORPORATIONS PAY TAXES AT THE
  GOVERNMENT IN VARIETY OF AREAS
• INCOME,
• PROPERTY
• SCHOOL
• VALUE-ADDED
• SALES
• USE
• SERVICE
• OTHERS

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CORPORATIONS ARE TAXED ON INCOME GENERATED IN THE
PROCESS OF DOING BUSINESS, WHILE INDIVIDUALS PAY
TAXES ON SALARIES, WAGES, ROLAYTIES, AND
INVESTMENT PROCEEDS.
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WHEN AN ECONOMIC ANALYSIS IS PERFORMED, IT IS
REASONABLE TO ASK IF THE ANALYSIS SHOULD BE ON A
BEFORE-TAX OR AFTER-TAX BASIS. FOR A TAX-EXEMPT
ORG.(UNIVERSITY, NON-PROFIT ORG.), AFTER-TAX
ANALYSIS IS NOT NECESSARY.
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BASIC TERMINOLOGY FOR INCOME TAXES

• GROSS INCOME, GI,(BRÜT GELIR) IS THE TOTAL OF ALL
  INCOME FROM REVENUE-PRODUCING SOURCES, INCLUDING
  ALL ITEMS LISTED IN THE REVENUE SECTION OF AN
  INCOME STATEMENT.(GELIR TABLOSU)
• OPERATING EXPENSES, E, INCLUDE ALL COR. COSTS
  INCURRED IN THE TRANSACTION OF BUSINESS.
• TAXABLE INCOME, TI, IS THE AMOUNT UPON WHICH
  TAXES ARE CALCULATED.
• TI GI E DEPRECIATION
• TAX RATE, T, IS THE PERTENTAGE, OR DECIMAL
  EQUIVALENT, OF TAXABLE INCOME OWED IN TAXES.
• TAXES TI T
• NET PROFIT OR NET INCOME RESULTS WHEN CORPORATE
  INCOME TAXES ARE SUBTRACTED FROM TAXABLE INCOME.
• NI TI- TAXES

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• CAPITAL GAIN IS AN AMOUNT OF TAXABLE INCOME
  INCURRED WHEN THE SELLING PRICE OF A DEPRECIABLE
  ASSET OR PROPERTY EXCEEDS THE ORIGINAL PURCHASE
  PRICE. AT SALE TIME,
• CAPITAL GAIN SELLING PRICE-PURCHASE PRICE
• IF THE RESULT IS POSITIVE, A GAIN IS RECORDED.
• CAPITAL LOSS IS THE OPPOSITE OF CP. IF THE
  SELLING PRICE IS LESS THAN THE BOOK VALUE, THE
  CAPITAL LOSS IS
• CAPITAL LOSS BOOK VALUE SELLING PRICE
• IF THE RESULT IS POSITIVE, A LOSS IS RECORDED.

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DEPRECIATION RECAPTURE, DR, OCCURS WHEN
DEPRECIABLE PROPERTY IS SOLD FOR AN AMOUNT
GREATER THAN THE CURRENT BOOK VALUE. DR
SELLING PRICE BOOK VALUE

• DR IS TAXED AS ORDINARY TAXABLE INCOME.

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CASH FLOW AND RATE OF RETURN BEFORE AND AFTER
TAXES
CFBT AND CFAT ARE USED TO REPRESENT ANNUAL
CASH FLOWS BEFORE TAXES AND AFTER TAXES,
RESPECTIVELY. CFBT GI E TI CFBT-
DEPRECIATION NET CAPITAL GAINS - NET CAPITAL
LOSS DR TAXES (TI)T CFAT CFBT - TAXES
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WHEN AN AFTER- TAX ANALYSIS IS PERFORMED AND THE
PW, AW, OR ROR IS COMPUTED, THE CFAT VALUES ARE
USED IN ALL COMPUTATIONS. AFTER-TAX ROR
(BEFORE-TAX ROR)(1- TAX RATE)
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EXAMPLE
IN ADDITION TO CORPORATE MANAGEMENT POSITIONS,
THE ESPINOSAS OPERATE A DIRECT MAIL BUSINESS OUT
OF THEIR HOME. THE RESULTS DURING ONE TAX YEAR
ARE BUSINESS REVENUE 60,000 EQUIPMENT DEPR.
8,000 BUSINESS EXPENSE 18,000 BUSINESS
INVESTMENT INCOME 5,000 TAX RATE 4 OF
TI THE ROR BEFORE-TAX IS 11. ESTIMATE THE
FOLLOWING a) CFAT b) AFTER-TAX ROR