ERAT

[nodes]

This is the third exercice I’m taking on ERAT and I’m always wrong (‘cause of recaptured depreciation). Does someone is confortable with it?

 

[nikko0355]

basically just keep on doing the problems over..
you need to look out for 3 things.
1–if you sell for a gain then you need to recapture all of the dep.
2–if you sell for a gain but for less than the total dep already taken you can only recapue this amount.
3–if you took a loss, you reacture nothing..

 

[mwvt9]

Just remember the concept. The idea behind depreciation is that you are slowly losing value in the asset over the years as it is being used. The various types of depreciation are just conventions on how quickly the asset loses value (straight line, DDB, etc).
When you actually sell an asset you compare you convention to reality. For example, if you bought and asset for 100 and over the years you wrote off 50 in depreciation but sold the asset for 75 your depreciation was overstated.
This means that over the years you got a deduction for the loss of value in the asset that you weren’t really entitled to….so you have to recapture it. Since you got to deduction against income that you didn’t deserve, the reverse is to add the same number back into income. This is your depreciation recapture.
This would be the situation that is described in #2 of nikko’s post above.
If you take a loss you depreciation was enough over the years. So you get a deduction to bring your depreciation convention in line with reality.
Hope this helps.

 

[nodes]

thank you guys, very helpfull.