Navigation:  Fixed Assets > Expensing fixed assets

The cost of a fixed asset is normally recovered through depreciation over the economic life of the asset. Only the annual depreciation amount is treated as an expense each year, even though the full cost of the asset might have been paid upon purchase.

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

 

 

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 expenses previously allowed as reductions of income if the fixed asset is retired from service or the company goes out of business before the expected lifespan of the asset has passed. In other words, the tax authority will demand its due if the conditions set for the exception are not met.

 

MYBOS can help you track necessary information if you take advantage of such exceptions for fixed assets. The extra steps necessary when expensing fixed assets are accomplished using custom fields.

In the Settings tab, select Custom Fields:

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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 the custom field as a column. Make the field Type single line text:

Click .

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:

In the register above, 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 when 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. Having all relevant information in MYBOS simplifies future financial and tax decisions.