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OT: Accounts and no accounts

Fictional scenario: company X makes a thousand Doozies(TM) in 2010 at a cost of $100 each and places a retail price of $500. The Doozies(TM) start selling in fits and bursts over seven years, consuming about half of them. Now the expected lifetime is 100 years, a virtual "forever".

Now we get into accounting flim-flammery. Each year, twenty percent of the original "value" is written of as a loss AKA "depreciation". [Say the law allows this or even more.] Never mind the quality and usefulness remains constant for the Doozies(TM) by design.

Firstly who determines this "value" and what exactly is it - the actual cost of manufacturing, or the retail price? And at the end of 5 years, the "book" value is zero. But one sells more after the 5 years - is the IRS profit an infinite percentage, and the total price the taxable income? After all, the cost of manufacturing has been "written off", which can be done only once.

So it behooves one to sell those Doozies(TM) yesterday before the value goes to zero and taxable profit becomes an infinite percentage.

What gives?

Reply to
Robert Baer
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So roughly the rest will go in the next 7-10 years.

They must be in military grade damp and rodent proof packaging then. Anything lying around for too long in company storage sheds has a bad habit of deteriorating by corrosion or ingress of unwanted critters unless it is incredibly well packaged. For some reason they love to sharpen their teeth on any coax cable that might be present.

We only have your word for that.

Their value is the cost of manufacture until you sell them and then your notional profit however much they are currently worth in book value subtracted from what you are able to sell them for. Inflation and competitive pressure from rival SuperDoozies may affect that.

0.8^5 = 0.32 0.8^10 = 0.1

It is still a veyr finite amount of actual profit. And you will need to recover your costs of storing these things for so long.

Normally you would aim only to make enough product to satisfy immediate demand plus a few months leeway and you wouldn't be packaging them to last forever unless it was a gold plated military contract.

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Regards, 
Martin Brown
Reply to
Martin Brown

What you did is delay taxes for those years you depreciated the product. If you don't like that, find out if it's legal to no depreciate your product. Mikek

Reply to
amdx

Sounds like a product that didn't have a market. Legend has it that after the video game crash of 1983 Atari crushed several thousand "ET" cartridges and buried them in a landfill in the Southwest somewhere

Reply to
bitrex

I don't see the problem in your scenario, infinite, smifinite.

Actually, one real problem with fully writing off parts is the FASB rule that they have to be then disgarded, thrown away or sold to an unrelated 3rd party, i.e. a surplus joint, etc.

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 Thanks, 
    - Win
Reply to
Winfield Hill

Not Legend...

formatting link 

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Chris.
Reply to
Chris

after the video game crash of 1983 Atari crushed several thousand "ET" cartridges and buried them in a landfill in the Southwest somewhere "

I think I read somewhere that someone found them a couple years ago.

Reply to
jurb6006

  • That is the way i look at it.

But, if one can make ten thousand for slightly over the cost of making 200, and storage is only a minor problem.. Then cost per Doozie(TM) drops significantly. Humbug.

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Reply to
Robert Baer

Ah,,,in effect toss perfectly good product away; thereby supporting our throw-away "economy".

Reply to
Robert Baer

  • Check; the case is famous/infamous.

Reply to
Robert Baer

I have known price breaks making it profitable to buy components at the

1000 off rate and sell on 80% of them to obtain 200 at a decent price.

Anything in our stores that didn't move for 5 years would have been corpse marked and sold off as junk/scrap. Shelf space is precious.

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Regards, 
Martin Brown
Reply to
Martin Brown

In effect, following the law.

Reply to
krw

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