Accelerated Depreciation

A prospective client mentioned they were having difficulty meeting certain financial covenants contained in their loan agreement. In GBQ’s review of their financial statements, we noted they were using accelerated depreciation methods for financial statement purposes.

The Challenge

Meeting a net worth covenant contained in their loan agreement.

The Solution

We recommended the client adopt a change in the methodology of calculating depreciation by switching to straight line depreciation methods. This is considered a change in estimate which is a prospective change. It reduced the amount of deprecation recorded for financial statement purposes by half and allowed them to be able to meet the covenant.