Tax savings and depreciation;

              Tax Savings and Depreciation
BY GORDON L. HOPPER Partner, San Diego Office
Presented at a Tax Conference sponsored by the San Diego Chamber of Commerce and the San Diego Chapter of The Cali­fornia
Society of Certified Public Accountants — November 1957
Depreciation has long been a controversial subject and nearly all businessmen have had their problems with it at one time or another. Prob­ably
several of those present here today have had amounts of depreciation which they had deducted in their tax returns questioned by the Internal Revenue Service. However, there are those who have some mistaken ideas about what depreciation is. A common misconception seems to be that depreciation is the difference between the cost of an asset and the price at which it might be sold or that there is at least some relationship between depreciation and market value. The truth is that market value is not a factor in determining the amount of depreciation and more often than not the depreciated value and the market value of depreciable assets are two very different amounts.
DEFINITION OF TERMS
It might be helpful in discussing the subject to define some of the terms used. Depreciation may be defined as the gradual wearing-out of property over the period of its useful life because of wear and tear, corrosion, decay, and other physical factors, due consideration being given to obsolescence. Depreciation accounting, the topic we are mainly concerned about here, is the process of systematically spreading the basis, which is usually the cost, of depreciable property over the period of its estimated useful life. Depre­ciable
property is property used in a trade or business or held for the pro­duction
of income. Useful life is the period of a property's usefulness to the taxpayer rather than the period of its existence.
This last definition is particularly important because it represents a change from past practice. Whereas the life inherent in the property in the past generally measured useful life, regulations under the 1954 Code empha-size that useful life for depreciation purposes is the useful life to the tax-payer. To illustrate the effect of this change, the situation of some business­men
who diligently maintain their equipment and generally do not dispose of it until it is practically worn out may be cited. According to present
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