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1948-49 Theatre Catalog, 7th Edition, Page 518 (503)

1948-49 Theatre Catalog, 7th Edition
1948-49 Theatre Catalog
1948-49 Theatre Catalog, 7th Edition, Page 518
Page 518


1948-49 Theatre Catalog, 7th Edition, Page 518

Currently Allowed Depreciation Schedules

Treasury Department Attitude 011 High Salvage Values Requires Readjustment of Accounting by Most Theatres

Even the most rugged equipment, however well built, eventually reaches the end of its maximum efficient use life. Modern business methods of accounting and cost control have set up certain depreciation schedules which annually charge a certain percentage of the original cost of any asset to build a fund for its replacement at its exhaustion date. Because the trade-in allowance or clearance value of unrebuilt used equipment was little more, and sometimes less, than the bulk of scrap metal it contained, no salvage value was anticipated; and should one result, it was either applied against the new purchase to arrive at a net replacement cost or credited to the income of the replacement year.

Classification of Depreciables

While salvage values will be treated at greater length in this overall survey of the current tax picture, it is important to first cover the number of years of average use life which the Treasury Department attributes to: (1) The Theatre Building itself; (2) The Special Equipment used mainly by theatres; and (3) The Building Equipment applicable to all structures. On this average use life is based the allowable depreciation percentages acceptable to Treasury agents, with possible minor variations either way in the event that unusual conditions exist. These are the minimum rates allowed. There have been many instances where taxpayers have resisted the Commissioner in his application of these minimum rates and have appealed to the Tax Court. While the latter usually upholds the Commissioner and nthe book", there have been cases where higher rates were allowed. All of the following depreciation standards have been approved by the U. S. Treasury Department in Bureau of Internal Revenue Bulletin HF".

The Theatre Building

With regard to buildings as such, the Treasury Department recognizes that the useful life of a building for business purposes depends to a large extent on the suitability of the structure to its use and location, its architectural quality, the rate of change in population, the shifting of land values, as well as the extent of maintenance and rehabilitav tions.

The extent to which the equipment of a building, such as heating, plumbing, electrical wiring and fixtures, elevators, and other improvements, must be replaced is an important factor in determining the over-all rate of depreciation to be applied to the building and its equipment. Relating to Theatre Builds ings themselves, the Treasury Depart ment has approved certain rates (Fig. 1).

1948-49 THEATRE CATALOG





Theatre men have been complaining that present depreciation rates on their structure and equipment are inadequate in the face of current inflated replacement costs. But the Treasury Department is using the present high price level as grounds for still further cutting allowable depreciation. The key to their reasoning is salvage value.

Because the Tax Court has now indicated in a current test case that it will back up the Treasury Department on salvage values, it behooves every theatre owner to rc-assay his assets and set up new depreciation rates. A schedule of the standard minimum depreciation rates on theatre buildings and theatre equipment as approved by the U.S. Treasury Department (Bureau of Internal Revenue Bulletin iiFE) is included.

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Special Theatre Equipment

Not taken into consideration under this schedule is the fact that theatres more than any other building or place of public assembly, with the possible exception of night clubs, are dependent on public taste for the admissions which constitute their income, so that frequent remodeling, refurnishing, and replacement is necessary to their very existence. As a result, a supplementary table (Fig. 2) has been prepared showing the approved average use life of Special Equipment, found mainly in theatres, on which depreciation percentages may be based. While in the general term, theatre equipment is considered to have an average life of 15 years, the actual range is between 3 years and 33 years.

Building Equipment The approved composite rate on Theatre Buildings includes the normal build (Fig. 1)

THEATRE BUILDING DEPRECIATION

Type of construction

Good Average Cheap

Composite rate (percent) 2 V2 % 3% 3 V2 0/0

Composite rate (years) 40 33%; 28 5/2





Average useful life (years) of

SPECIAL THEATRE

EQUIPMENT Cabinets, record and film . 15 Carpets . . . . . . . . . . . . . . . . . . . .. 8 Choppers, ticket . . . . . . . . . . . .. 10 Counterweight systems . . . . . .. 20 Counting machines . . . . . . . . . . . 10 Curtains:

Asbestos or steel . . . . . . . . .. 33

Machine automatic . . . . . . . .. 20

Stage . . . . . . . . . . . . . . . . . . . .. 8 Decorations, painted mural, etc. 12 Dimmers, state and studio 8 Draperies . . . . . . . . . . . . . . . . . .. 8 Elevators, orchestra pit . . . . .. 20 Fans, exhaust and ventilating . 15 Furniture, lobby and foyer 15 Lights, stage, Kleig, etc. 20 Linoleum and rubber flooring . 10 Mats, rubber and linoleum . . . . 10 Mirrors . . . . . . . . . . . . . . . . . . . .. 20 Orchestra phones . . . . . . . . . . .. 10 Orchestra stands and chairs .. 15 Organs . . . . . . . . . . . . . . . . . . . .. 10 Pianos . . . . . . . . . . . . . . . . . . . . . . 10 Projectors:

Lantern slide . . . . . . . . . . . . .. 15

Motion picture . . . . . . . . . . . . . 10

Registers, ticket . . . . . . . . . . . .. 10

Rewinders, film . . . . . . . . . . . . .. 15

Scenery, stage . . . . . . . . . . . . . .. 3

Seats . . . . . . . . . . . . . . . . . . . . . .. 20

Signal systems . . . . . . . . . . . . .. 15

Sound equipment . . . . . . . . . . .. 10

Splicers, film . . . . . . . . . . . . . . .. 15

Stereopticons . . . . . . . . . . . . . . .. 15

Transverters . . . . . . . . . . . . . . .. 15

Waxers and renovators, film . .

(Fig. 2)

ing equipment listed in connection with it, but more specific lists (Fig. 3) have been approved covering such special Building Equipment as is generally re ferred to as the mechanical trades which can be replaced with a minimum of change in the basic building structure. Except for those noted with an asterisk, it will be observed that all have a life expectancy of somewhere less than the building itself, with a range of from 5 years to 25 years.

Once again, some special or unusual conditions may exist which will present an acceptable claim for a variation either way from the above; but these years of use life, from which corresponding percentages can be easily worked, represent the approved yardsticks of the Treasury Department.

Changing Salvage Values

The same nationally prominent firm of Certified Public Accountants, which su
1948-49 Theatre Catalog, 7th Edition, Page 518