I've just taken over a client for bookkeeping and self assessment. He's not that happy with his old accountant.
I've had a look at his final accounts for the last few years and noticed that he has a list of fixed assets on the balance sheet as long as your arm. On closer inspection I see things like a mobile phone with a value of £23 being depreciated at £2 per annum. Office furniture with a value of £43 being depreciated at £4 per annum.
Is it just me or does this seem ridiculous to anyone else?
not what your getting at but estimating the useful economic life of a mobile phone at 11.5 years does not tally with the idea of the use of an asset being recognised over the period to which the company see's the benefits of it's use (in the case of a mobile or indeed any electronic device I think it would be difficult to ever justify more than four years).
Back to the point at hand this is one of those where you can bring out the stapler arguement. A stapler would be used over more than one period so should be depreciated but it's value is insignificant so one would always expense.
Both of the mentioned items would to my mind be expensed but there may be some reason that the accountant was attempting to not front load these items. For example, does the client have the income to cover expensing all of the assets?
Generally though I would be in agreement and find it a pretty strange case to capitalise such items. However, it is an allowable treatment even if it is a little unusual.
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Shaun
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It's strange Shaun. The guy is a builder, and I asked him about the mobile phone which seems to have appeared as early as 1992. He says he generally goes through a mobile a year, sometimes more than one with so many building site mishaps.
To be honest, the more I see of this particular accountants work, the more frustrated I become. This is the second client to come from him so far, both sole traders with modest profits. He refuses to participate in any kind of hand over, and I see why. However, on the plus side he is a member of a professional body, but not one I've heard of much (IFA?), so I might be able to get the handover paperwork by making a complaint to them though I don't really want to go down that route.
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.
I was asking a question along similar lines - who decides which level you should capitalise or expense an item? This accountant has decided everything should be capitalised by the sounds of things.
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Generally, for most of the small clients I have, I would capitalise anything that was lasting over a year and cost more than £100. But I get your point Peasie, its really open to interpretation and most folks interpretation you could drive a coach and horses through.
I just found it crazy to play with £2 depreciation. I suppose he has to do something to justify his (IMHO) excessive fees.
Kris
-- Edited by kjmcculloch83 on Monday 7th of November 2011 06:53:04 PM
Think you've identified a couple of issues Kris - not only the crazily low levels of capitalisation, but the fact that the fiuxed asset schedule never gets reviewed. I always check this one when I take over a job, as invariably there will be several computers or printers.
Though as Nick says, there's a laziness in not ensuring that the fixed asset register is up to date. Regardless of the nonsense of suggesting a mobile is lasting for over 10 years, the speed at which technology progresses would suggest this is highly improbable.
I follow exactly the same logic as you and capitalise only items that are worth £100 or more and last for more than one year.
However I also keep an eye on the turnover of the business and make sure that claiming a capital item worth less than £100 as a revenue expense for the year does not affect the overall profit too much. I would claim a capital item worth £50 as a revenue expense for a business with a turnover of say £75,000 because that expense is not really affecting the overall picture, but I would capitalise the item if the turnover was £500 for the year as the impact would not be negligible.
I guess it is all down to common sense and interpretation as you say.
Fabs
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Some time (years!!) ago Shaun posted a neat list of percentages from which to judge what to consider as expense or asset based on a reporting standard.
It related to the turnover and some other balance sheet items, and for the life of me I cannot find it on here*
I would agree with Fabs that the decision will depend on a number of factors
*When you read this Shaun (and assuming you know what I'm talking about), any chance you can repeat it?
Quite a nice read. Makes me really miss UKGAAP when you read things like that old thread.
Also makes me quite miss the hey day of the three amigo's on the site.
P.S. Edited because the site editor took out everything between the less than and greater than signs in the list of materialarity bands (which made it make no sense at all) so replaced with words rather than character representations.
-- Edited by Shamus on Monday 14th of November 2011 05:36:02 PM
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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.
If only I could have recalled the context of your old thread, you wouldn't have felt the urge to dissappear to find it. Knew it had percentages in it though
As HMRC say an item can be expensed (for tax purposes) if it not likely to last more than two years, I use that as my starting point but as Kris's OP relates to value, at what point do you include an item as an asset?
Ah the Three Amigos (wipes away a tear ) I have noticed we seem to have lost a number of old members. Perhaps they are like "The Old Contemptibles" and have just faded away.
Just realised that the editor has taken the less than and greater than signs out of my post... I'll have to change that as makes no sense as it is.
There are definitely those who go away and come back (like me after my jolly off to Scotland for six months) and those who just don't come back... Unbelievable, I been back almost a year now.
I think that the major issue with sites like this is that they can take over your life if your not careful (and I've got the posts to prove it).
I know that when at home I've almost always got the site on one of my screens or tabs.
At work I've actually made the decision not to have the site on ever or I will never get any work done.
Talk in a bit,
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.
on second reading realised that the editor had taken out everything between the less than and greater than signs.
Glad that I reread that or could have ended up quite embarrassed at leaving that one around... Reminds me, now that I've got the power I really should revisit that Annual Investment Allowance fau par of mine from early last year (where I missed AIA out of a response completely!)... Nar, that's cheating. Let it stand testimony to the fact that I can give godarn awful technical advice at times.
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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.
) I have noticed we seem to have lost a number of old members. Perhaps they are like "The Old Contemptibles" and have just faded away.
