Question

In: Accounting

As the global pandemic has not slowed with its spread, many business owners and individuals have...

As the global pandemic has not slowed with its spread, many business owners and individuals have considered filing bankruptcy. As part of the health and safety measures, courtrooms have been closed to slow or deter the spread of the virus. A small business owner and her business partner have decided to file bankruptcy as the pandemic has slowed business over the past three months laving uncertain of future business.

•What argument might be made in favor of allowing a debtor who lives outside an area with mass transit to claim a deduction in the “Ownership Costs” category for a car that he or she owns free and clear?

Solutions

Expert Solution

There are three core components to Total Cost of Ownership/TCO

  1. Acquisition/Physical Hardware Costs
  2. Operating Costs
  3. Personnel Costs

Acquisition Costs

Acquisition/Physical Hardware costs include the cost of equipment or property before taxes, but after commissions, discounts, purchasing incentives, and closing costs. Sometimes this will include one-time peripheral equipment or upgrades necessary to installation or utilization of the asset.

Operating Costs

Operating costs include subscriptions or services needed to put the item into business use. This includes utility costs, direct operator labor, and initial training costs.

Personnel Costs

Personnel overhead may include administrative staffing, support personnel to the equipment, facility housing the equipment and operators. This may include ongoing training and troubleshooting labor for maintenance purposes.

Example of Total Cost of Ownership (TCO)

An example of a business investment that requires a thorough analysis of the total cost of ownership is an investment in a new computer system. The computer system has an initial purchase price. Additional costs often include new software, installation, transition costs, employee training, security costs, disaster recovery planning, ongoing support, and future upgrades. Using these costs as a guide, the company compares the advantages and disadvantages of purchasing the computer system as well as its overall benefit to the company for the long term.

On a smaller scale, individuals also use the total cost of ownership when making purchasing decisions. While the total cost of ownership can be overlooked, its analysis is essential in preventing unnecessary future losses that can arise from focusing only on the immediate direct costs of a purchase.

Corporations use the total cost of ownership as a means of analyzing business deals, while individuals look at the total cost as a way of assessing potential purchases.

Hence it can be possible to allow a debtor who lives outside an area with mass transit to claim a deduction in the “Ownership Costs”, only if that will brought some profit to the business, then cost of ownership can be overlooked


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