Help with depreciation.My accountant just adds the value of the equipment, doesnt give a list of equipment that has be depreciated in the last three years.
He is not going to do the books anymore and I will try to do it myself. I have use Sage instant account and he always has done the books manually.
He never made a depriciation list for all the equipment bought in the last tree years.He just add up the value every year and depreciated of 25%.Some of the equipment is not used anymore and I dont know how to deal with it.
Help creating a depreciation table and any advice regarding my situation.
Bet he did keep a depreciation schedule but he's just not telling you about it.
You have the depreciation that has been allocated so far from your last three years accounts.
You have the original value of your equipment from invoices etc.
He's been useing the reducing balance rather than straight line or units method however, the amount should still be depreciated over the useful economic life of the assets in a systematic fashion that reflects the value in use of the asset.
You will need to rework the figures including applying any adjustments for disposals etc. if you have got rid of any of the equipment no longer used.
I am adverse to saying that there is anything wrong with what your accountant has been doing for you as the period is only three years so the assumption is that most items would still have been on the depreciation schedule regardless as to the depreciation method used or whether or not you had stopped using them (although if you have sold them then that's another issue).
My assumption is that he was depreciating at 25% reducing balance to front load depreciation down to a redidual value of around 30% of purchase price in year 4 which you didn't actually get to.
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
What about the equipment the get broken like lenses, trypod ect dont last 3 to 5 years. Some of our equipment get to be trown away. I think my old accountant(Heis nearly eighty years old) doesnt give scrap value to the equipment. Is he correct?
How much is the equipment value has to be for depreciations?
I would agree with Shaun on the 25% reducing balance as this tends to the norm unless the equipment has a specific lifespan. Dont forget you can also claim AIA and FYA (Annual Investment Allowance & First Year Allowances) on new equipment purchased and capitalised. This will require further reading up though.
With regards to equipment that gets broken or scrapped for other reasons, I think you have to use your judgement on this.
My rule of thumb is that the initial cost of the equipment is capitalised, but then say if a Lense gets broken the following year, I would treat it as a Repair & Renewal cost in the profit & loss without adjusting the pool value unless its worth a lot of money. I may even put in a consumable equipment code in the 5000 or 6000 range.
Value wise it varies, some people like to capitalise everything, others use a "anything over £50" or even higher amounts.
If the lense costs say £100 I probably would be tempted to capitalise.
If we are only talking small value and regular replacement, then put in profit & loss.
From the descriptions was that equipment material enough to be capitalised in the first place?
If they were material enough to capitalise should they have been depreciated over a shorter period? Perhaps two years if that was always the estimated useful economic life.
I appreciate that one of the capitalisation tests is that the asset goes over more than one period but so would a stapler and nobody would think of capitalising one of those.
Hypathetically where an asset breaks and it is material before it has reached the end of it's normal useful economic life then there needs to be an immediate write down to either scrap value or zero. Whichever is the greater. However, in reality how often does that really happen.
I know that I've had computers that have gone pop before being fully depreciated but just let them run their course (its not as if the tax man lost anything as with AIA tax is often accellerated well beyond depreciation).
Back to the question, if there is a part of a major asset that wares out faster than the rest of the asset then that should have been depreciated seperately anyway. For example the engines on a plane, the interior of a plane or the lining of a kiln which have different depreciation schedules to the rest of the asset.
As for the previous accountants treatment of scrap. If you don't scrap assets or the assets indeed have no scrap value then there is nothing at all wrong with that treatment. It's only where company assets have a scrap value that the non trading income has to be accounted for.
Thats not to say that assets at the end of their useful life but with scrap value can be just given away as in an investigation the inspector would be quite aware of the values of assets disposed of.
Scrap value would be the amount that the scrap could be disposed of in a ready market with a willing unrelated third party. Things like cars, scrap metals, etc. are easy to value as there are ready markets. A broken lense on the other hand will be worth didly squat however your then in a situation where how do you prove that it was broken and has not actually been sold?
Back to the capitalisation question.
There was a discussion on here some time back as to what warrants capitalisation and the general feeling seemed to be that if it's less than £100 then expense if it's more than £100 and will last for more than one period then capitalise.
Don't act on that though as just mentioning it again is going to start a debate about capitalisation which will end up getting to a good answer. Watch this space....
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
And there you go on the capitalisation question....
I really have got to learn to type faster.
Pretty sure that we're in agreement on this one Paul (although I must read back through my post now as the old grey matter was meandering a little whilst I was writing it).
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
An accountant I used to work with will only capitalized equipment over£100. I have a small list of equipment with a different range of prices but they are equally important. These are some equipment bought last year. Profoto studio kit £1500 inc vat, carriage charges Profoto barn -doors £300 inc vat, carriage charges Zoom reflectors £80 each Flash £ 70 Soft boxes £30 each
When depriciating equipment do I have to include carriage charges and vat?
You should include all cost involved in aquiring an asset, with the exception of VAT, if you are VAT registered, as you are claiming that back. If you are not VAT registered, include it.
whilst I'm in general agreement with your point, and in complete agreement in this instance. This is getting into a whole other minefield where if this advice was read by someone else they might think that such was applicable in cases where it is not. Some other items to consider would be :
1) Borrowing costs - Capitalisation of the present value. See IAS23 borrowing costs, FRS15 Tangible Fixed Assets and IAS16 Property Plant and equipment.
2) Offsetting borrowing - If the loan gathers interest between inception and use. This will effectively reduce the effective interest rate.
3) Revenue - if an item brings in other income between inception and being brought into condition for use such as a loan taken out to build a factory and the land being used as a car park until building starts. The income should not be offset as it does not directly relate to asset but should be recognised as other revenue. (See IAS18 Revenue and FRS5 application note G).
The general rule is that only those costs incurred wholly, exclusively and necessarily in bringing the asset to the current location and condition for it's intended use by management can be capitalised.
So, for example, if an asset is constructed but is defective due to the construction then the cost of correcting such construction should be expensed rather than capitalised as the error was not a normal part of bringing the asset online.
This is just the tip of the iceberg so as I say, it's a complete minefield for the unwary and the inclusion of certain items in the capitalisation of an asset is not always as straight forwards as it seems.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Totally agree. Although (as you said) in this instance, the examples quoted are a bit simpler to handle.
One area (and i haven't delved deeply into it myself) is the question of legal fees. If I understand correctly, in most cases these cannot be capitalised into the cost of the asset, so presumably they would be expensed?
I know exactly where to look for the answer to that one but I've got to go out now so will reply later.
I've missed these discussions. If we can just keep them up for the next two months I might stand some remote chance of getting through paper P2 (Corporate Reporting) at the next sitting.... Reminds me. Oops, still got to pay for that. Better do that this afternoon in order to pay for the next round of drinks in the ACCA offices tonight! lol
talk in a bit,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
And now back to answering that one in relation to legal fee's.
I've had a fun half an hour or so of research on this one so appologies in advance for the long post.
IFRS
The new IFRS3 on business combinations specifically forbids the capitalisation of legal expenses as part of an acquisition.
See paragraph 53 :
Acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include finders fees; advisory, legal, accounting, valuation and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs
of registering and issuing debt and equity securities. The acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities shall be recognised in accordance with IAS 32 and IAS 39.
However, for normal tangible fixed assets rather than acquisitions of subsidiaries one would refer to IAS16 and the relevant part of that indicates that professional fees such as legal fees are part of the purchase and therefore subject to capitalisation :
To quote paragraphs 16 and 17 of the standard :
16 The cost of an item of property, plant and equipment comprises:
(a) its purchase price, including import duties and non-refundable purchase
taxes, after deducting trade discounts and rebates.
(b) any costs directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the manner
intended by management.
(c) the initial estimate of the costs of dismantling and removing the item and
restoring the site on which it is located, the obligation for which an entity
incurs either when the item is acquired or as a consequence of having used
the item during a particular period for purposes other than to produce
inventories during that period.
17 Examples of directly attributable costs are:
(a) costs of employee benefits (as defined in IAS 19 Employee Benefits) arising
directly from the construction or acquisition of the item of property, plant
and equipment;
(b) costs of site preparation;
(c) initial delivery and handling costs;
(d) installation and assembly costs;
(e) costs of testing whether the asset is functioning properly, after deducting
the net proceeds from selling any items produced while bringing the asset
to that location and condition (such as samples produced when testing
equipment); and
(f) professional fees.
The above should be read in conjunction with the full standard which are available from the links below (you may need to join the ICAEW document library to access them) :
UKGAAP
Under UKGAAP paragraph 10 of FRS15 Tangible fixed Assets reads :
10 Examples of directly attributable costs include :
acquisition costs (such as stamp duty, import duties and non refundable purchase taxes)
the cost of site preparation and clearance
Initial Delivery and handling costs
installation costs
Professional fees (such as legal, architects and engineers fees).
The estimated cost of dismantling and removing the asset and restoring the site to the extent that it is recognised as a provision under FRS12 Provisions, Contingent Liabilities and Contingent Assets. - The fact that the prospect of such expenditure emerges only some time after the original capitalisation of the asset (eg because of legislative changes) does not preclude their capitalisation.
Conclusion :
Legal fee's are allowable as part of the capitalisation of an asset under both UK GAAP and IFRS but they are not allowable as part of the cost of the acquisition of a subsidiary.
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
hi, i would also add to Shaun's list 17.10 of IFRS for SME. haven't got a link right now but this one allows legal fees to be capitalised on property,plant or machinery too. also don't really want to type it in on my phone...
also what about capitalising finance costs? or revaluation? i recently started to realised how does choosing accounting standards can effect a business and it's profits.
So yes FRSSE does allow revaluation and capitalising finance costs such as interest but with IFRSSME these are not permitted. So there, choose your accounting policy wisely when you have an option to choose. Next one on my list - investment properties.... I don't want to go into IFRS or IAS, just talking about everyday SMEs
I'm sure that your already signed up for the ICAEW standards website but for any others reading this you would need to set up a signon in order to access the IFRS's (UKGAAP FRS's are accessible to all).
The more that I keep writing in this thread the more that I realise you virtually have to memorise these standards and then the standards setters keep coming along and changing them.... And that would be why accountants get paid more... I really need a bigger brain for this!
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
In what context are you thinking about freehold property? Is this things like holiday lets run as businesses or genuine freehold properties held for their investment potential?
For business assets such as B&B's then surely the standard rules for business assets per FRS15 / IAS16 would apply (as detailed above). However for investment property it would come under IAS40 / SSAP19.
IAS40, Investment properties states in paragraph 21 :
21 The cost of a purchased investment property comprises its purchase price and any directly attributable expenditure. Directly attributable expenditure includes, for example, professional fees for legal services, property transfer taxes and other transaction costs.
Unfortunately I'm having real difficulty finding the equivalent in SSAP19 as the text of the standard has been deleted from the online resources leaving just the 5 introductory pages. However, SSAP19 does require that investments are held at open market value (revaluation rather than depreciation) which would surely preclude the capitalisation of legal fees.
Like Attila says, one has to choose their standards wisely and looking at the Lords report on IFRS for SME's this week fingers crossed we will continue to have the choice as to whether to stick with UKGAAP or adopt IFRS for quite some time to come.
Right, I'm off to keep looking for the elusive full version of SSAP19 as the above makes assumptions and assumptions have no business being in technical answers.
Hope your having a fun day,
Talk later,
Mutley.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Yes I am registered with IASB and have both IFRS, IAS and IFRSSME on my PC, also completed my IFRSSME studies but did not take the exam yet (need money and mainly time to revise to get the result I expect from myself). I am not brave enough just yet to start with IFRS, and I have other studies to do first but I am sure you know how that is, I am collecting everything to read on those quiet winter evenings ;), you know the ones never come.
Really, with my full time(and more) job+family life I found it extremly difficult to find time for studies so they are temporarily on hold but hopefully from the summer I will be back on track with them.
On HMRC website if you search for 'International Accounting Standards - the UK tax implications' - paragraph 16 is a good one on SSAP19/IAS40, also one taxationweb :
it even has my review at the bottom of it. What I didn't say in the review however is that it's a 2008 text and things have changed a bit in IFRS land since then so at £40 you have to read it whilst knowing that some parts are no longer true. (so if you buy this version get a second hand copy).
my BPP revision book for paper P2 arrived from Amazon this morning. All over the cover it reads that it's for UK and International variants yet inside there is absolutely nothing related to UKGAAP (no FRS's, no SSAPs).
Did a bit more digging and it transpires that by UKGAAP the ACCA actually mean IFRS with UK law and ethics.
OMG... two months to the big day and it seems that I've got to unlearn everything in relation to accounting standards that I've been working towards for the last seven years. (I had thought that the learning of the IFRS's was for comparrison to UKGAAP, not complete replacement in the exams).
As an aside also just read that if you passed P2 (corporate reporting) previously under UKGAAP but pass P7 (advanced Audit) from now onwards under UKGAAP (or vice versa) you still won't be able to get an audit practice certificate as the P2 won't count. (If you've already passed both P2 and P7 then you're ok).
I have absolutely no wish to be an auditor but I don't want to close the door on being an insolvency practitioner and you now need to pass P7 for that.
Oh well, at least IFRS cashflow statements are simpler than those under UKGAAP. Which I suppose is quite lucky as it won't be long before it's compulsory in the UK to do them for all companies.
Thankfully I hadn't yet paid for my June exam so not too late to swap to the international variant even though I reccon I'm just setting myself up for a practice exam here!
Right, looks as though I'm going to be a busy little bee for the next two months.
Talk later,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
(in the spirit of your revision and my further learning)
