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LESSORS' DEPRECIATION AND PROFIT‐AN APPROACH VIA DEPRIVAL VALUE
Author(s) -
Baxter W.T.
Publication year - 1982
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1982.tb00969.x
Subject(s) - depreciation (economics) , economics , profit (economics) , fixed asset , book value , deferred tax , lease , monetary economics , cash flow , microeconomics , business , finance , tax reform , state income tax , public economics , production (economics) , gross income , earnings , financial capital , capital formation
Lessor accounting raises intriguing problems. Its accepted methods spread depreciation, and thus profit, in yearly doses whose size jumps capriciously and with scant regard to any principle. Yet the economic qualities of an (asset do not change just because it is leased; the only new factor is the odd way in which tax and interest re‐shape its cash flows. If the rules of deprival value are sound for familiar assets, they should be sound too for leased assets. But its arithmetic must expand to cover flows (tax and interest) that are not usually coupled with depreciation. Two results then follow: after‐tax profit tends to be constant throughout the lease, and the full size of tax bounty becomes clear.