Request for Authority to Change Method of Computing Depreciation Expense for Certain Fixed Assets from Straight-line to Double Declining Balance Method

April 10, 1996 BIR RULING NO. 048-96 29 (f) 000-00 048-96 Joaquin Cunanan & Co. 8th Floor BA Lepanto Building 8747 Paseo de Roxas Makati City Attention: Ms . Tomasa H . Lipana Partner Gentlemen : This refers to your letter dated March 15, 1995 addressed to the Revenue District Officer of Revenue District Office No. 47, Makati City, requesting in behalf of DART (PHILIPPINES), INC. (DPI) authority to change its method of computing depreciation expense for certain fixed assets from straight-line to double declining balance method effective January 1, 1995. cdta It is represented that DPI is a domestic corporation engaged in the manufacture and sale of plastic houseware products, toys and other classes of items; that it has been using straight-line method of depreciation on its fixed assets since it started business: that in order to reflect its true income, your client has decided to adopt the double declining balance method beginning January 1, 1995 pursuant to Section 29 (f)(2)(B) of the Tax Code, as amended; that in support of your request, you submitted to this Office copies of the following documents, viz: 1. Summary of building and machineries affected by the change in depreciation method; 2. Detailed list of building and machineries affected by the change; 3. Comparative schedule of depreciation for years 1995 to 1997 computed under the straight-line method and declining balance method; and 4. Certification of your Plant Engineering Manager. and that field verification conducted in this case disclosed that the building used as warehouse needs to be redesigned and reconstructed to minimize the use of building area and that machineries and equipment need to be upgraded and modernized due to obsolescence and frequent breakdowns. In reply, please be informed that on the basis of the foregoing client, DART (Philippines), Inc. is hereby granted permission to change its method of computing depreciation of certain fixed assets from straight-line to double declining method effective January 1, 1995, pursuant to the provisions of Section 109 of Revenue Regulations No. 2 which provides, viz: "Section 109. Method of Computing Depreciation Allowance . The capital sum to be replaced should be charged off over the useful life of the property, either in equal installments or in accordance with any other recognized trade practice, such as apportionment of the capital sum over units of production. Whatever plan or method of apportionment is adopted must be reasonable and must have due regard to operating conditions during the taxable period. While the burden of proof must rest upon the taxpayers to sustain the deductions taken by him, such deductions must be disallowed unless shown by clear and convincing evidence to be unreasonable. The reasonableness of any claim for depreciation shall be determined upon the conditions known to exist at the end of the period for which the return is made. If it develops that the useful life of the property will be longer or shorter than the useful life as originally estimated under all the then known facts, the portion of the cost or other basis of the property not already provided for through depreciation allowances should be spread over the remaining useful life of the property as reestimated in the light of the subsequent facts, and depreciation deductions taken accordingly." Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue