I am an analyst for a tax assessor in Florida. We are in
the process of recalibrating our depreciation tables for tangible
personal property and are trying to determine the effective economic life
of each equipment. We hope to do this through analysis of the assets
contained in our taxpayer database. We have sorted the assets by
equipment type and by year acquired. For example, for the equipment
category "Forklifts", we have found that there are 2,534 forklifts
reported by our taxpayers. They have been acquired between 1955 and
1998. Approximately 25% of the total have been acquired since 1997; 50%
since 1994 and 75% since 1991. Is there a statistical test or tests
which may be applied that would aid us in concluding what the economic
life for the asset categories should be? Thank you.
Since the method you choose for your depreciation will ultimately have to be
ok'd by the IRS, I would suggest you instead direct this question to them.
It is usually a wise decision to get an agent's name and ID # so that if
your returns are questions you can describe who gave you the advice you
elected to follow. This can be useful in avoiding or reducing penalties in
the event errors were made.
Richard R. Rupnik
Internal Quality Auditor
This is an interesting concept; using the age of capital goods held by a
populace to arrive at a fair market value and thus a depreciation
table. However, I wonder if the effective economic life of an equipment
can be ascertained this way.
The reason is this: the method will be heavily influenced by such factors
as the type of goods, economic conditions (local and global), interest
rates, competition, changes in the scope and nature of work in which the
equipment is used, technological changes, sample size, etc. If one can
adjust for these, then a fair assessment could be made.
If one ignores these factors, then a simple histogram (plot of the
percentage of equipment that are older than 0,1, 2, ..., 50 years) can be
used. Based on the data you provided, it seems that there is a liner 8% per
year acquisition rate for the past 9 years. Maybe one can extrapolate this
linearly to give a life of 12.5 years for the forklifts. As a test, one
can check this against the price of used forklifts recently sold in your area.
It is obvious that if interest rates double, the slope of the
afore-mentioned curve will change (reduced), indicating a slower (or
possibly non-linear) depreciation rate.
In any case, I suppose experts in the field have thoroughly studied many
depreciation methods including this one. I just checked the Internet and
found that there is a Society of Depreciation Professionals
(http://www.depr.org) that you may want to contact regarding your question.
Dr. Ali Khounsary
Advanced Photon Source
Argonne National Laboratory
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Update: June 2012