November, 1962 No. 1
Issued by the Accounting Principles Board American Institute of Certified Public
Accountants 666 Fifth Avenue, New York 19, N. Y. Copyright 1962 by American Institute of Certified Public Accountants
NEW DEPRECIATION GUIDELINES AND RULES
1. This Interpretive Opinion is an extension of Chapter 10(b) of Accounting Research Bulletin No. 43, "Income Taxes." It concerns accounting problems which may arise in connection with the new De-preciation Guidelines and Rules issued by the United States Treasury Department Internal Revenue Service as Revenue Procedure 62-21, effec-tive July 12, 1962.
2. The service lives suggested in the Guidelines for broad classes of depreciable assets are, in general, appreciably shorter than the indi-vidual lives given in Bulletin "F," which was previously used as a guide in the determination of deductible depreciation for income-tax purposes. The Guidelines purport to bring the lives used for income-tax purposes into line with the actual experience of taxpayers, and thereby reduce the areas of controversy as to the amount of deductible depreciation, but not to provide another type of accelerated depreciation.
3. For the first three years, either the new Guideline lives, or lives longer than the Guideline lives, may be used for income-tax purposes without challenge. Lives shorter than those found in the Guidelines may be used if they have previously been established or are justifiable as reflecting the taxpayer's existing or intended retirement and replace-ment practices. If the "reserve ratio" tests provided in the Procedure subsequently indicate that the lives used for income-tax purposes are not in accordance with actual retirement and replacement practices, the lives may be lengthened in accordance with the "life adjustment" tables provided in the Procedure. If the adjustment is not sufficient to bring tax and actual lives into line, the adjusted lives will then be replaced by lives determined in accordance with all of the facts and circumstances.
4. A taxpayer should carefully review the estimates of useful life of depreciable property adopted for financial accounting purposes, with the objective of conforming them with Guideline lives to the extent