Skyway Merits Debated

[simms3]

OK horrible analogy, but I am with STJR on this one.  I guess think of depreciation like amortizing a loan.  Just about everything has a book value, including capital expenditures.  One of the only things not depreciated is land.  I hate accounting so much, so I am bowing out of this debate, but I hardly doubt there is something seriously wrong with the current books.  We all know the skyway was a horrible project to begin with and cost wayyy too much money.  Everything you want to know about how they are depreciating that asset should be in the notes.  All of the details, especially since it is a public project, should be completely transparent and public in the footnotes somewhere.  If something on any of the financial statements (income, balance, cash flow, whatever) for this project seems unclear, it probably has a whole page devoted to it.

[stjr]

So the expense was paid twice?  Once when we built it, and then once again during depreciation?

I don't think so.

Stephen, you just failed my "accounting class".  You need to take a remedial accounting course.  On the other hand, maybe you are "unlearnable" ! 

[buckethead]

I see the depreciation issue as a gimmick.

Both on the part of JTA and the part of $ky-high way detractors. I suppose it matters as a part of accounting, It represents a capital investment. Does JTA pay income taxes?

It isn't like the skyway is going to be resold.

There was a $200m investment. The money will not be seen again. The Skyway will not make a return on the money.

I think a comprehensive mass transit system is more than just desirable. It is a necessity. Should the skyway be a part of that comprehensive system? Even if it is less than desirable (which I do not believe), it is a necessity. We already spent daddy's money on half the erector set. When we try to get the rest of our comprehensive erector set money from dear old dad, he may wish to see that we have been good stewards of the first erector set.

[Traveller]

The "expenditure" was made when the $200 million was spent, but the accounting "expense" occurs over the useful life of the asset.  Depreciation is indeed an operational expense, but since the Skyway presumably has little to no salvage value, it is largely a sunk cost at this point and should not be considered when evaluating whether to continue or discontinue service, assuming that's what the current debate is about.  If not, please clarify.

[stjr]

Stephen, I really don't appreciate your accusations that I am "lying" to cover your own total ignorance of accounting.  Enough already.  Just admit you don't know what you are talking about and cut this foolishness.  You should be embarrassed.  Also, you are acting very un-dignified and I thought your standards were higher than that.  Maybe not.

[stjr]

The "expenditure" was made when the $200 million was spent, but the accounting "expense" occurs over the useful life of the asset.  Depreciation is indeed an operational expense, but since the Skyway presumably has little to no salvage value, it is largely a sunk cost at this point and should not be considered when evaluating whether to continue or discontinue service, assuming that's what the current debate is about.  If not, please clarify.

I have demonstrated the difference between "cash flow" and "P & L accounting".   If someone wants to talk "cash flow" I have no problem with that.  But, that doesn't address the "wasting away" costs of an asset that is only addressed by considering depreciation.

Also, not all costs are sunk one time.  Many parts (and associated value) of the Skyway last for far shorter periods than, say, the superstructure.  The cars, the movable parts, the computers, the software, fixtures, A/C.... just about anything not made of reinforced concrete will likely require regular and repeated replacement during the life of the system.  Even the concrete may need major structural attention at some point.  When does Stephen propose expensing all those costs?  That is what depreciation does.  Plain and simple.  Try OPERATING the Skyway with out these monies.  You can't.  That's why depreciation is an "OPERATING expense" and JTA shows it this way.

[stjr]

Are you claiming that the system both cost 200 million up front, and is additionally costing 7 million dollars a year?

I know this is a total waste of time talking to a wall, but once more:  Two distinct facts:  FACT #1: The initial INVESTMENT is $200 million. FACT #2:  The investment of $200 million is depreciated annually as it loses value, per JTA, at $7 million, over time.

There is no double counting except by Stephen Dare.  Your conclusion is a pure figment of your imagination because you don't seem to have a clue about what I am saying.  Go talk with your CPA and let him explain it to you.  Like I said, you appear to be "unlearnable".    Lashing out against others due to your own shortcomings is inappropriate. 

[stjr]

I think your needle is stuck.  I hear a broken record.

[stjr]

I think your refusal to answer the question is laughable.

Then have a good laugh on me.  Because you don't seem to be getting anything else from me. LOL, myself.  I will let my posts stand for themselves and you do the same.  Others can draw their own conclusions.

[stjr]

Are you claiming that the system both cost 200 million up front, and is additionally costing 7 million dollars a year?

So would you answer this question, Yes or No?

I answered above and I am finished with you on this subject.  Reread my posts and maybe one day you will find my answer.   If not, then your mystery will just have to stay a mystery.  I know you like a good mystery.  Now you have one. 

[tufsu1]

so...assuming the $200 million investment depreciates at $7 million a year....after about 28-29 years, there would be no value t the system....so would it continue to depreciate (thereby creating negative value) or would the operating loss miraculously look much better?

[stjr]

so...assuming the $200 million investment depreciates at $7 million a year....after about 28-29 years, there would be no value t the system....so would it continue to depreciate (thereby creating negative value) or would the operating loss miraculously look much better?

Tufsu, I suspect it's the blind leading the blind here, between you and Stephen.  Blinded by your love of the Skyway, that's for sure. 

While it is technically possible that depreciation could expire fully at some point, here it is very unlikely. First, because the system's original $200 mil is actually not allocated to a single component, but likely hundreds or even thousands of components.  As these are replaced and repurchased, much of the original $200 million will be replaced with millions more in capital investment to keep it OPERATING.  See example I posted above.  These new investments will (a) result in any undepreciated balances, less any salvage proceeds, being written off fully (or, if salvage exceeds the net asset value, recognizing a gain) in the year of disposal and (b) reset the depreciation schedule for that replacement asset to its new investment value to begin depreciation anew .

Second, "when" depreciation is taken is a factor of the assumptions made of the assets' productive life expectancies.  If JTA overestimates an asset(s) life, rest assured depreciation will always be there.  If JTA underestimates an asset(s) life, it is possible that asset is fully depreciated while still in use.  But, given hundreds or thousands of components and fair estimates, I would imagine, on average, JTA should come pretty close to replacing assets as they approach the end of their depreciable lives.  Since their replacements, per above, will start depreciation anew, I expect there will always be depreciation at a level, that if anything, will gradually increase over time as the cost of replacements will likely be higher than the cost of what is being replaced (you know, inflation!).  

Since you and Stephen are such brilliant accountants, tell me how you would expense the cost of buying and re-buying assets that waste away?  Tell the accounting world your marvelous new way of doing this.

[simms3]

You depreciate assets to zero, not in continuum.  Book value is for accounting purposes.  Depreciation is necessary because of GAAP rules (and IFRS).  Depreciation is also used for tax purposes, and FASB rules involving depreciation are almost as complicated as inventory rules, but you can use more than one method of depreciation for different components and different purposes and between different reports.  As stjr has stated (I believe), there are many different components to the skyway, both physical and intangible.  I'm sure it's more complicated than anyone on this board not directly involved in the accounting and financing process of the skyway can answer for.  I don't have my CPA and don't plan on getting it (CFA maybe, but I need to work on the accounting for test 1 before I start that).  From the conversation that I have been hearing on this thread, as bad as I am and uninformed about accounting as I am, I still feel like I am one of the only ones grasping the non-issue here that is being made into an issue by people who don't seem to know absolutely anything about accounting (and btw Wikipedia is a good place to start or you can take my accounting textbooks from me for free because I have been trying to sell them back for a year and more and they are only 2-3 years old, but nobody wants them because FASB keeps changing, and if you don't know what GAAP, IFRS, or FASB are, then you should not even comment at all on this thread).

[stjr]

^ +++++

Finally, a voice of understanding and reason.  Thank you, Simms.

[stjr]

Stephen's imagination runs amuck again.    Looks like the midnight hour must be nigh!  Yep.