Client has purchased a computer which I have posted to Computer Equipment: Cost (Fixed Asset) - Is this correct or should it go to expense as it was only £400?. On QB there is a Computer Equipment: Depreciation account as well. How do i journal the depreciation of the computer? Will the journal reflect the expense on the P&L report?
QB does have a FA register, but it does not post for you at year end, you have to work out the Dep Charge and journal that yourself. There may not be an account for the Dep expense so keep and eye out for that.
I'll throw a minor spanner here - nothing you have done is wrong but, as the cost of the computer is only £400 do you want to put it a fixed asset account? Fixed Assets are expected to last well over a year and if memory serves the usual depreciation for a computer would be over 3 to 5 years. Are they expecting the machine to last that long?
Many small to medium businesses use an expense account called something like 'Small Office Equipment' for low value asset purchases and effectively write them down in the year of purchase.
The upper limit to a purchase in this category is dependent on the individual business and how they wish to treat such acquisitions. I work with businesses where the limit is as low as £250 and as high as £1000.
we've not spoken for a while, hope that you are well.
depreciation is based on the duration that the client is expecting the asset to be used over. Basically meeting the FRS15/IAS16 criterion of an asset is consumed over its useful econmic life.
With a computer I would generally depreciate over three years even though its generally out of date before it's delivered.
The key to whether to capitalise or deprecaite really comes down to whether the asset is material.
There is a ballpark materialarity test that if an asset if less than all of the following then generally its ok to expense (I've only included the P&L tests as this is determining whether expensing is material to the P&L).
0.5% of turnover
5% of pre tax profit.
Conversely if greater than any one of the following then always capitalise
1% of turnover
10% of pre tax profit.
Anything between those two comes down to a judgement call.
So, in the case of a £400 computer I would see no issue with expensing it if
Turnover > £80000
Pre Tax Profit > £8000
And I would expect it to be capitalised if
Turnover < £40000
Pre Tax Profit < £4000
Overriding the above materialarity tests I set a deminimus limit for all clients of £100 regardless of turnover or profit. Anything below that isn't worth capitalising (The old stapler test. It lasts for more than one period but would you ever capitalise it).
That was fun, (how sad am I!)
Talk in a bit, just off out now to cut the lawn as our five rabbits just aren't earning their keep!
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.
Starting back in the days when a PC could cost £2-3,000, my fixed assets register used to be a right mix of bits and pieces, where I bought a computer and capitalised it, then rebuilt it (or had it rebuilt), and upgraded or replaced various components that often spent their lives in a variety of computers. Plus the external peripherals. I rarely bought a complete new machine, except when I needed an extra one, and often then I had some of the components to go into it! The Irishman's shovel was nothing compared to the complexity! So the line between what should or shouldn't be capitalised was extremely blurred! The software was expensive enough to capitalise too.
The easiest solution is to acquire computers on Freecycle, where you can get perfectly adequate ones for mundane business tasks, and use open source software. You save money and there's nothing to capitalise .
Its a way around things John where a "repair" (always expense) may be replacing the motherboard, hard drive, ram, etc.
My first PC was a Tiko 386 dx with a whole 90mb (thats right, mb, not gb) of hard drive as I just felt that nobody could ever fill that amount of storage! That on cost me £2000 back in 1990. I've still got it as just can't bring myself to just throw away something that cost that amount of money... strangely I don't have the same attachment to ex wives and they all cost me far more!
__________________
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 had one that cost £2,500 about the same time. That and the HP Laserjet III at £1,300 was the only time I ever needed a business loan! And the laser printer was at trade price, as I sold computers and had an account with the local distributor! The big tower case went years ago, as it wasn't compatible with the later motherboards.
90Mb was impressive! I started my business with an Amstrad PC1640 with a 30Mb hard card, rather than the 20Mb hard drive that Amstrad installed (or was it 10Mb?). Then I had a Tandon PAC386SX with removable 30Mb drives. Then the £2,500 custom built one with probably about 40Mb HDD. It was downhill in price after that, except for the £3,000 I paid for an NEC 386SX laptop with TFT screen. I wouldn't pay much more than £300 for a laptop now!
My latest desktop computer cost me my very favourite price, as it was being dumped by a friend who I was helping to move house, although I spent about £18 upgrading the memory! It runs the equally free Linux quite happily! It's under an extension to my desk, with an HP Colour Laserjet I acquired on Freecycle above it. That cost me £18 too as it wouldn't work until I replaced one of the toner cartridges, but should give me a few thousand copies before I have to spend anything else on it!
we've not spoken for a while, hope that you are well.
depreciation is based on the duration that the client is expecting the asset to be used over. Basically meeting the FRS15/IAS16 criterion of an asset is consumed over its useful econmic life.
With a computer I would generally depreciate over three years even though its generally out of date before it's delivered.
The key to whether to capitalise or deprecaite really comes down to whether the asset is material.
There is a ballpark materialarity test that if an asset if less than all of the following then generally its ok to expense (I've only included the P&L tests as this is determining whether expensing is material to the P&L).
0.5% of turnover 5% of pre tax profit.
Conversely if greater than any one of the following then always capitalise
1% of turnover 10% of pre tax profit.
Anything between those two comes down to a judgement call.
So, in the case of a £400 computer I would see no issue with expensing it if
Turnover > £80000 Pre Tax Profit > £8000
And I would expect it to be capitalised if
Turnover < £40000 Pre Tax Profit < £4000
Overriding the above materialarity tests I set a deminimus limit for all clients of £100 regardless of turnover or profit. Anything below that isn't worth capitalising (The old stapler test. It lasts for more than one period but would you ever capitalise it).
That was fun, (how sad am I!)
Talk in a bit, just off out now to cut the lawn as our five rabbits just aren't earning their keep!
Shaun.
Hi Shaun,
It has been a while - been busy :)
That was generally what I was getting at, you've just spelt it out better!
Ho hum back to the never ending house work - gave up on the garden and got a gardener!
.
