Expense fixed assets

The cost of a fixed asset is normally recovered through depreciation over its economic life. Only current depreciation is treated as an expense each accounting period, even though the full cost of the asset might have been paid when it was purchased.

However, some local tax authorities allow fixed assets to be treated as current expenses under exceptions to normal practice for various reasons, including:

  • Promoting business investment
  • Reducing administrative burdens
  • Encouraging small business formation

A typical exception is to allow the entire cost of a fixed asset to be recovered in a single year as a current expense under specific circumstances. However, such exceptions often include restrictions of their own, such as requirements to recapture (give back) accelerated depreciation taken previously if the fixed asset is retired from service or the company goes out of business before the asset’s expected lifespan has passed. In other words, the tax authority will demand its due if criteria for the exception are not met.

Manager can help track necessary information if you take advantage of such exceptions for fixed assets. Purchasing, depreciating, and disposing of fixed assets are covered by other Guides. Extra steps necessary when expensing fixed assets are accomplished using custom fields.

In the Settings tab, select Custom Fields:

Locate the Fixed Asset list and click New Custom Field:

Define a custom field for the date the fixed asset is placed in service. Assign this custom field to Position 1. Check the box to Show custom field as a column. Make the field Type Single line text:

Click Create.

Define a second custom field for depreciation method in the same way, assigning it to Position 2. Make this custom field Type a Drop-down list. Enter list options allowed by local law and business policy. In this example, straight-line depreciation and accelerated depreciation under (fictional) Rule 24-3998 are allowed:

Define a third custom field for the recovery period. Assign it to Position 3. Define a fourth custom field for the end of the recovery period, which may or may not match the actual expected life of the fixed asset. Of course, labels for all these custom fields can be altered to match local requirements.

When these custom fields are completed for all fixed assets, the Fixed Assets register becomes a useful tool for determining:

  • Whether a fixed asset was subject to a depreciation exception
  • How long the fixed asset must remain in service to avoid recapture of depreciation expenses

In the register below, the delivery truck is being depreciated in a standard, straight-line fashion over a 7-year lifespan. No special treatment is required. But the packaging machine was fully depreciated at the time it was purchased, yet is expected to last 10 years. It currently has no book value, even though it remains a valuable business asset. So if it is disposed early, adjustments to income may be necessary to recapture the accelerated depreciation. Follow local tax law in this respect.

The same basic approach can be followed whenever additional information must be tracked for future decision-making about fixed assets.

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