Request for Change Method of Computing Depreciation Expense of Property, Plant and Equipment

September 28, 1994 BIR RULING NO. 146-94 29 (f) 000-00 146-94 SGV & Co. 6760 Ayala Avenue Makati, Metro Manila Attention: Atty . C . P . Noel Tax Division Gentlemen : This refers to your letter dated March 29, 1994, requesting in behalf of your client, Philippine Rubber Project Co., Inc. (PRPC), authority to change its method of computing depreciation expense of its property, plant and equipment on straight-line basis instead of the unit-of-production method effective January 1, 1994. cdtech It is represented that PRPC has been depreciating its property, plant and equipment based on the unit-of-production method; that the landholdings and the plant situated therein were placed under the Comprehensive Agrarian Reform Law (CARL) so much so that PRPC was obligated to sell its landholdings to the Department of Agrarian Reform (DAR) for the benefit of Goodyear Agrarian Reform Beneficiaries Association; hence, your client has no choice but to depreciate its remaining assets and equipment on straight-line basis. In reply, please be informed that on the basis of the above representation, your client Philippine Rubber Project Co., Inc. is hereby granted permission to change its method of computing depreciation of its remaining assets and equipment from unit-of-production method to straight-line basis effective January 1, 1994, 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." cdta Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue