Hardley's Troubles Continue

[Easy Rider]

The USA Today article mentions the charge to earnings associated with the tax cut. I don't understand that at all.

It is DEPRECIATION expense.

The money goes from one pile to another and becomes non-taxable in the process.
That in addition to the lower tax rates of the "profits" that are left.
The money does not disappear; quite the contrary.
The company is better off because of this "charge to earnings" not worse.

Having been a CPA, you should understand the deferred nature of depreciation expense......the way it used to work.
Now they have this "pool" of backlogged depreciation that they expected to "write off" as an expense across the next 10 years (for example) and now they can charge that entire figure against the current years earnings. WOW. Really looks bad on the old balance sheet.

Except that they get to keep that huge amount of cash.
But they want us to think it is somehow this big blow to their "earnings"........when it really is a blow only to their TAXABLE earnings.

 

[UtahPete]

It is DEPRECIATION expense. The money goes from one pile to another and becomes non-taxable in the process.
That in addition to the lower tax rates of the "profits" that are left. The money does not disappear; quite the contrary. The company is better off because of this "charge to earnings" not worse.

Nope, can't accrue depreciation expense. There is no 'money' involved and it doesn't go from one pile to another.

Lower tax rates result in GREATER profits, not less. A $53 million charge to earnings as a result of a tax cut makes NO sense at all. Particularly since 'book' profit is only loosely tied to taxable earnings.

This story needs some 'splainin', as Ricky would say to Lucy.

 

[Easy Rider]

Nope, can't accrue depreciation expense.

Sure glad that I didn't use YOU for my CPA. :shocked:

See the edit to my prior post.

 

[UtahPete]

Sure glad that I didn't use YOU for my CPA. :shocked: See the edit to my prior post.

That's okay, I never did tax returns for someone else. But, as a CPA, I needed to understand how tax liability affects the balance sheet and income statement.

As an audited, public company, H-D must report earnings in accordance with GAAP (Generally accepted accounting practices). Depreciation cannot be accelerated under GAAP, except in certain circumstances, which don't apply in this case. What affects reported earnings is actual tax liability per tax law, which is computed differently than GAAP.

If depreciation was accelerated for TAX reasons, and it may be that it is associated with the closing of the plant, then the affect of that would be included in the write-down (for financial reporting purposes). But, that write-down (charge to earnings) is associated with the decision to close the plant and is completely unrelated to the change in tax law.

So, it still does not explain how they could have a $53 million hit to earnings in the current year attributable to the new tax law.

 

[UtahPete]

But they want us to think it is somehow this big blow to their "earnings"........when it really is a blow only to their TAXABLE earnings.

Who is 'they'?

If it is being reported as a hit to reported earnings, then it has no bearing on their taxable earnings. Do you really want to keep debating something you don't really understand?

 

[RinconRyder]

My understanding is that the new tax law goes into effect for individuals and corporations when they file their 2018 tax returns (regardless of the calendar dates).

That is my understanding as well.

 

[ARtraveler]

Depreciation has nothing to do with "cash." When equipment, etc. is purchased--that is where the cash comes in.

Depreciation is the "spreading" of the original purchase cost over the periods that the equipment, etc. is expected to provide benefits to the company.

GAAP calls it the "matching" principle. Matching the expenses of the period with the revenues earned.

There is no such thing as a 100% write off the first year for any large equipment, etc. purchases. They currently have a section 179 statute that puts a limit on how much can be deducted in year one.

I am sure the accountants for HD know what they are doing. I am thinking it is the interpretation of the data that has gone awry here.

 

[UtahPete]

There is no such thing as a 100% write off the first year for any large equipment, etc. purchases. They currently have a section 179 statute that puts a limit on how much can be deducted in year one.

I am sure the accountants for HD know what they are doing. I am thinking it is the interpretation of the data that has gone awry here.

Exactly

 

[UtahPete]

Not just HD.
https://www.usatoday.com/story/mone...fter-1-900-point-early-year-rally/1078066001/

From that article; (i.e. the stock market correction had NOTHING to do with the tax cut.)

The Dow Jones industrial average, which had been riding a wave of investor optimism to fresh records on almost a daily basis in 2018, has over the past two days come under the heaviest pressure since the surprise Brexit vote in June 2016 rocked markets. Suddenly cautious investors are reevaluating the market's prospects as challenges like rising interest rates and dangerously high levels of investor confidence pose risks for stocks. Indeed, a long period of market calm that stretches back more than a year was shattered Tuesday after the Dow briefly fell more than 400 points, ending the day down nearly 363 points, or 1.4%, at 26,076.89.

 

[JerryB]

Hi RinconRyder,

Re: its accounting year ends June 30 (I think).

It changed so many years ago I do not remember when. The federal agency I worked for ( and I think all of them ) have a financial year ending of 30 Sep.

I know as 30 Sep got closer, we spent money like crazy.

Jerry Baumchen

 

[Bob Denman]

Jerry,
It was the Federal Government::shocked: how could you tell that you were spending money in an EXTRA crazy way? :dontknow:

 

[UtahPete]

Jerry, It was the Federal Government::shocked: how could you tell that you were spending money in an EXTRA crazy way? :dontknow:

It all has to do with the way new budgets are set. Depending on the agency (or unit within an agency), the next year's budget can be cut if you don't use all of this year's budget. I remember on board the ship, as the last week of the budget year approached, we threw a lot of gear overboard and re-ordered it so we could show we 'spent' our allocated budget, hoping that would stave off future budget cuts. It was mostly furniture, but other stuff too.

That's been going on for a long, long time.

 

[RinconRyder]

Hi RinconRyder,

Re: its accounting year ends June 30 (I think).

It changed so many years ago I do not remember when. The federal agency I worked for ( and I think all of them ) have a financial year ending of 30 Sep.

I know as 30 Sep got closer, we spent money like crazy.

Jerry Baumchen

I think September 30 is correct. June 30 seems to be popular with non-gubmint companies.

And there used to be a "policy" that any unspent budget money at the end of the fiscal year would automatically be deleted from next year's budget. This prompted companies to spend it all each year then always ask for more.

 

[ARtraveler]

Hi RinconRyder,

Re: its accounting year ends June 30 (I think).

It changed so many years ago I do not remember when. The federal agency I worked for ( and I think all of them ) have a financial year ending of 30 Sep.

I know as 30 Sep got closer, we spent money like crazy.

Jerry Baumchen

Feds fiscal year is Oct 1 through Sept 30. Many other companies have a July 1 through June 30.

Fiscal years can be any twelve month calendar period. Year end usually coincides with a "least" busy month--as usually, a large inventory has to be taken.

 

[Easy Rider]

So, it still does not explain how they could have a $53 million hit to earnings in the current year attributable to the new tax law.

You are overlooking a critical fact:
The tax bill CHANGED GAAP, making the total cost of capital expenses deductible IMMEDIATELY, instead of being "expensed" over a period prescribed by law.

So.....because of the previous laws, companies had only been able to "write off" a portion of their capital expenses each year and carry the balance forward. Because of the change, it appears that they are now "cashing in" that savings account and deducting it ALL against "last years" higher rates.
A true windfall........that a lot of people just don't understand.
Including a few CPA's it seems.

Got any friends who are still practicing CPA's ? Ask them.

 

[LateLifeCrisis]

"The Harley is better because you have more to by to BLING it......More Farkling" PS Where is the road test. Did the Spyder win on the road ????

And This

The Harley is at it's limits around the corners. And the Spyder is just cruising around.


I've yet to have a Harley keep up when the road ant straight.

Love their "unbiased opinions." Maybe that's Harley Davidson's problem - they only see one brand of motorcycle and that's their motorcycle and frankly don't care what else is out there and have no clue as to their competition. How can you intelligently compare a product when it so obvious they did no research or bother to learn anything about the Spyder. The remark about the controls being clustered and not knowing how they worked was interesting - do they really think that's a legitimate concern when doing an "unbiased" comparison? HD does have some good t-shirts and they put together good commercials - - anybody see the X-Games this past weekend featuring the Sno-Cross? Most of the commercials were for HD. Can-Am missed a golden opportunity to get their products visible before the fans of a booming sport as the X-Games are kicking The Olympics butt and so many of the Winter X-Game sports are machine based. That video was a few minutes I'll never get back.

 

[Easy Rider]

Do you really want to keep debating something you don't really understand?

Is it not YOU who is asking the question: "How ?"

Come up with a better (correct) answer and I will listen.

And you might be surprised at how much I understand.

 

[Easy Rider]

They currently have a section 179 statute that puts a limit on how much can be deducted in year one.

I think you will find that is one of the things that has changed.
Look it up. Or ask someone who knows for sure.

 

[Saluda]

Thought the news said they were going to invest about 50 million into electric bikes.

 

[ARtraveler]

As a non-tax person, I looked up the following information. It applies to 2018. Not sure if there is going to be a "double standard." as in, separate depreciation methods for GAAP and the IRS. That is currently what is happening.

New enhanced depreciation rules and revised section 179 information for 2018.

Note: The enhanced depreciation rules are for a short period--about 4 years and then will be phased out--similar to the "non-mortgage interest deductions" from the past.

This "may" result in more income tax being paid in future years because they will not have the deductions taken against current income. Time will tell.


Immediate Expensing – 100% immediate expensing (bonus depreciation) is available for certain business expenses including machinery and equipment and qualified improvement property acquired and placed in service after September 27, 2017. The provision applies to both new and used property. As such, this provision heightens the importance of cost segregation studies. Costs identified as tangible personal property and land improvements are eligible for immediate expensing whether the property is new construction or acquired property. The 100% expensing is available through 2022, after which it begins phasing out by 20% per year. For example, immediate expensing is limited to 80% in 2023, 60% in 2024 and so forth until it is fully phased out in 2027.
Enhanced Section 179 Depreciation – The popular Section 179 deduction has been increased from $500,000 to $1 million with the phase-out limitation increasing from $2 million to $2.5 million for tax years beginning after December 31, 2017. These amounts are indexed for inflation for years beginning after 2018. The Section 179 deduction applies to tangible personal property such as machinery and equipment which is purchased for use in a trade or business. The new law increases the scope of qualified property to include “qualified real property” which includes the following improvements to nonresidential real property after the date the property was first placed in service: roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems. Additionally, the provision is expanded to include certain depreciable personal property used to furnish lodging.

Will have to see what the new accounting texts say if I continue teaching.