Court Opinion

ID: 9522731
Source: CourtListenerOpinion
Date Created: 2023-08-07 02:31:48.171127+00
Date Added: 2024-06-11T13:03:46.063370
License: Public Domain

Mr. JUSTICE STOUDER, dissenting: I respectfully dissent from the opinion of my colleagues. Since the amount of the judgment, $9,760 coincides exactly with the book value of 16 carts as tendered by defendant’s exhibit number two, it is clear the trial court considered the book value controlling and entered judgment according to the figures submitted in defendant’s exhibit number two. I do not believe the book value as submitted in this exhibit conforms to accepted accounting principles and the trial court erred in relying upon it when entering judgment. Before embarking on a discussion as to this issue, several other points which relate to the relevance of book value merit discussion. The operative terms of the employment contract, as are set forth by the majority, require repurchase of the golf carts at the lower of “book value” or the average of plaintiff’s and defendant’s appraisals. For the purposes of simplicity, I will refer to this latter amount as the average appraisal value. There is no alternative method of determining the price to be paid under the repurchase provision, contrary to the suggestions of the majority. Both the book value and average appraisal value are relevant to determining the purchase price, but only because that price would be the lower of the two. According to the majority, plaintiff never obtained a proper appraisal and hence the Ogilivie appraisal of *700 per cart provided by defendant must stand alone as the average appraisal value. It should be noted that paragraph 14 of defendant’s counterclaim contains what I believe to be a judicial admission that the two letters the plaintiff sought to have admitted were valid appraisals. Furthermore, while Paul Schuecking testified his letter was not an appraisal, Schuecking was called as defendant’s witness and testified that the fair market value of the carts was *500 to *550, which is the same amount his letter stated these carts with good batteries would sell for at retail. While I believe the majority errs in holding defendant’s appraisal to be the only valid appraisal, it is unnecessary to belabor the point further. Even if the plaintiff were successful in using the two letters as appraisals, the amount I consider to be the proper book value would still be lower than the average appraisal value and hence determinative of the repurchase price of the carts. At the outset, it should be recognized that the purchase price of the golf carts is set by the contract and this price may not necessarily correspond to the actual worth of the carts. The mode of determining the book value or actual value of an asset is generally well established within the accounting profession. During trial, the plaintiff called Gerald Banwart as a witness. Banwart is a certified public accountant and his qualifications as an expert witness were stipulated to by the defendant. Banwart testified that the term book value would mean the original cost of an asset together with any major improvements which extended the life of the asset less any accumulated depreciation which had been taken to date. The following testimony then occurred: “Q. Is it possible using methods of accounting for one asset to have more than one book value? A. It is possible to have a different value on a financial statement than on an income tax statement. Q. How does this difference arise? A. Well, basically the only difference that would normally arise would be if you used this method of depreciation, you start out with the same cost value and use the same life, that’s your common straight-line for financial statement purposes and the accelerated method for income tax to reduct [sic] the amount of taxes. Q. Presume you were using the accelerated method of depreciation for income tax purposes and straight-line for financial statement accounting purposes, why would there be a variance? A. Well, if you were using a double declining balance or some accelerated method, depreciation is taken more rapidly in the first years of the asset than the straight-line method. Later the straight-line would catch up and they both would depreciate at the same time. Q. Will the straight-line more accurately reflect the true value of the asset? A. Not necessarily, it depends on the type of asset. Q. Generally, in your experience, have you found it to be the case if a company uses the straight-line method for accounting and tax purposes, would he have two different book values on that particular asset? A. No, they would be the same.” It should be noted that the only other witness with any experience in accounting was the defendant’s father, John Bannon, who was a bookkeeper for a real estate firm and helped defendant prepare his tax returns. Although employed for a number of years in accounting related occupations, John Bannon was never qualified as an expert witness in accounting principles. Hence, Banwart’s testimony stands alone as to what constitutes acceptable practices in the accounting profession. I believe the foregoing testimony establishes that while the amount of depreciation claimed on a tax return may be different from the amount listed on a financial statement, this difference can arise solely by employing a different method of computing depreciation on the tax return than on the financial statement (e.g., double declining balance versus straight-line) and not by utilizing a different salvage value and/or a different useful life. In short, while the formula or method of computing depreciation may differ, the items used in the computation such as cost, useful life, major improvements extending the useful life, and salvage value, must be the same for all purposes. The tax returns of defendant for the years 1973-1974 were admitted into evidence. On those returns, defendant claimed the golf carts had a three-year useful life with no salvage value at the end of that period. Defendant utilized the straight-line method of depreciation in computing the amount of his depreciation deduction. Yet, defendant’s exhibit number two employs the same straight-line method to compute book value, but instead of using a three-year useful life and zero salvage value, the exhibit uses a four-year useful life and a *200 salvage value. In light of Banwart’s testimony, the only witness qualified as an expert in accounting, the computations contained in this exhibit did not conform to acceptable accounting principles. Plaintiff was entitled to have the book value computed using a useful life of three years, zero salvage value, and the straight-line method of depreciation. Since the original cost of the carts was (*13,700) and no objection was ever raised to the cost of the major improvements claimed in defendant’s exhibit number two, the cost of the carts before depreciation was *18,596. Utilizing 21 months of depreciation, simple calculation reveals the proper book value is *387 per cart. As stated earlier, since this amount is lower than any amount which could be obtained from averaging appraisals, the purchase price of 16 carts should have been *6,192.1 believe the judgment in favor of defendant for *9,760 should be reduced to this figure.