USA Computers purchased for employees, but can I depreciate?

[knowledgesponge]

Hi everyone and thanks in advance for your advice.

My business is entirely remote and we purchase new laptops for each new employee who starts with the company. If the person leaves they are not required to return it to us or reimburse us regardless of their time with the company (no one is willing to store a bunch of equipment at home). However, we did make the initial purchases in full.

I've gone back and forth with folks in the business on the subject of depreciation.
Are we able to depreciate these computers, given that we purchase them? We have no rules about personal use on these computers, so is it a matter of depreciating estimated time they are being used only for business tasks?
Or should I put these in office expenses since it's a one and done purchase?

 

[DrStrangeLove]

Since they don't have to return the computer when they leave, it sounds more like employee compensation (an in-kind sign-on bonus) than the company's purchase of depreciable assets. It doesn't sound like it fits under office expenses, since it's something that benefits employees specifically.

You could make it clearer by offering new employees a lump sum credit at a preferred computer vendor to buy themselves a new laptop to use for work. Or give them an explicit option to purchase the laptop for some nominal amount (like $1.00 or something) when they leave so that the laptops are clearly company assets, and hence depreciable by the company.

As for the work use/personal use problem....yeah, there are no solutions that aren't snuggling up to the line. You're on your own with that one.

 

[simply_slmn]

Under US GAAP, the laptops your company purchases for employees should be capitalized and depreciated over their useful life, typically three to five years, regardless of whether the employees are required to return them upon leaving. The fact that there are no restrictions on personal use does not change the need for depreciation since the primary purpose is for business tasks. While it might seem easier to treat these purchases as a one-time office expense, doing so wouldn't align with GAAP standards for capitalizing tangible assets. Instead, continue to depreciate them, and if an employee leaves without returning the laptop, consider writing off the remaining value.

 

[dgcd]

In my opinion, and considering that the assets do not belong to the company since they will remain in the possession of the employee, all related cash flow should be treated as a deferred expense and amortized over a reasonable period (for example, the employee turnover period). However, it should be considered as a prepaid expense in any case.

 

[dgcd]

Under US GAAP, the laptops your company purchases for employees should be capitalized and depreciated over their useful life, typically three to five years, regardless of whether the employees are required to return them upon leaving. The fact that there are no restrictions on personal use does not change the need for depreciation since the primary purpose is for business tasks. While it might seem easier to treat these purchases as a one-time office expense, doing so wouldn't align with GAAP standards for capitalizing tangible assets. Instead, continue to depreciate them, and if an employee leaves without returning the laptop, consider writing off the remaining value.

I agree with you, but only if all the laptops are the property of the company. Based on explanation, since there is no obligation for employees to return these assets, the company does not have ownership of them.

 

[DrStrangeLove]

Under US GAAP, the laptops your company purchases for employees should be capitalized and depreciated over their useful life, typically three to five years, regardless of whether the employees are required to return them upon leaving. The fact that there are no restrictions on personal use does not change the need for depreciation since the primary purpose is for business tasks. While it might seem easier to treat these purchases as a one-time office expense, doing so wouldn't align with GAAP standards for capitalizing tangible assets. Instead, continue to depreciate them, and if an employee leaves without returning the laptop, consider writing off the remaining value.

The policy on personal use affects US tax reporting, not US GAAP reporting. If the laptop is used for business use more than half the time, the laptop can be depreciated under US tax law. If the laptop is used for personal use more than half the time, it can't be depreciated. And if its use switches from business use to personal use, that would trigger depreciation recapture.

OP, you need to clear up who actually owns the laptop while the employee is working for the company. That will point you toward the right accounting treatment. If the company owns the laptop, it should be depreciated as equipment. If the employee owns it, the laptop is in-kind compensation and can be expensed.