Back to Basics – Untangling the web of fixed assets and depreciation expense
Abstract: Fixed assets are a common source of loan collateral. But how much do lenders really know about accounting for property, plant and equipment? If they accept fixed assets at face value, they’re likely to make imprudent decisions about the collateral values, profitability and overall creditworthiness. This article explains that FASB and IRS rules permit some leeway when deciding whether to capitalize or expense a purchase, as well as in choosing depreciation methods. These choices can have a large effect on a balance sheet.