Institute of Certified Bookkeepers
Making you count
Accounting for Assets and Depreciation
July 2014
© 2014 Institute of Certified Bookkeepers
www.icb.org.au 1300 85 61 81 [email protected]
Assets and Depreciation
Table of Contents
Introduction .........................................................................................................................................................................3
Current and Proposed Laws ...............................................................................................................................................4
Is it an Expense? ................................................................................................................................................................5
Is it an Asset? .....................................................................................................................................................................6
Business Turnover less than $2 million ..............................................................................................................................6
Motor Vehicles ....................................................................................................................................................................7
Business Turnover more than $2 million ............................................................................................................................8
Depreciation Rates Table ...................................................................................................................................................9
General Business Pool Records (<$2m turnover) ............................................................................................................10
Motor Vehicle Records .....................................................................................................................................................11
Low Value Pool Records (>$2m turnover) ........................................................................................................................12
Business Assets Records (>$2m turnover) ......................................................................................................................13
Bookkeeping checklist / Information of work performed in relation to Assets and
Depreciation………………………………………………………………………………………………….………....……………14
July 2014
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Page 2
Accounting for Assets & Depreciation (includes alternate methods of announced changes) July 2014
Introduction
In theory we do have a “Simplified” good system for accounting for assets. You do not have to keep track of each individual asset.
Today’s complication is knowing which thresholds apply for instant write off: Is it the law that actually exists or the law that the
government have announced is to apply? Allegedly the change will apply as from 1 January 2014 ie last tax year.
If it wasn’t for politics, the system of record keeping for assets IS simple. - Matthew Addison, Executive Director ICB
What to do while the law is uncertain?
The below explains the actual legal position. We have then provided comment as to how to apply the law that has been announced.
The announced changes are to drop the immediate write off from the $6,500 back to the $1,000. It also removes the instant $5,000
write off for Motor Vehicles. These changes only apply to business with turnover of less than $2 m per annum.
The concept in either case is you don’t need to keep a detailed listing of all assets! (Software companies take note – Pools apply!)
Treat the purchase of the asset just like any other purchase: allocate the GST exclusive purchase cost to an account called, say,
“Business Assets”. It is an account in assets on the balance sheet. The only records that need to be kept are the same as if it was an
office stationery expense, or advertising bill: keep the detailed tax invoice in the same way that you do for other expenses.
The individual asset enters a “pool” or an account that is the running balance of the (diminishing) value of those assets. If you sell an
individual asset then the proceeds reduce the value of the running balance of the pool. Each individual asset sold does NOT require
its own profit and loss calculation. It is all about the value of the pool.
For BAS purposes everything above $1,000 capital has to be coded and reported to appear in G10. Don’t ask me why but that is the
ATO requirement. For Income Tax it may be different, see below. Make sure you can reconcile the BAS Capital amounts to the Tax
Return reported Capital Purchases! They may not be the same, as the law is different but you may need to explain it. It shouldn’t
matter but there is evidence that the ATO triggers audits based on these matching. There is an argument that you should go back
and alter the past BAS to match the Tax Returns when they are completed so that it all reconciles, however there is an argument that
making any changes also triggers review and audit activity.
Our recommendation for any review or audit by the ATO is to ensure a phone call happens to explain the differences logically. You
may prevent a time consuming audit process for what is a difference in the law.
July 2014
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Page 3
Current and Proposed Laws—Where to from here?
Is the business using the “Small Business Concessions” for the purpose of the Uniform Capital Allowance (Depreciation of assets)?
Assuming the answer is YES, i.e. the business has an annual turnover of less than $2 million (as of today)1:
1. Write off to an expense account all items that cost less than $6,500 (GST excl)
2. Allocate to a Balance Sheet account “Business Assets General” all items costing over $6,500
3. Calculate the depreciation to be charged and reduce the values of the accounts in #2 above in line with the worksheets provided,
see page 10
4. Advise the Tax Agent of exactly how you have kept the books and provide details
If the answer is NO, they aren’t a Small Business:
1. Write off to an expense account all items that cost less than $100 (GST incl)
2. Allocate to a Balance Sheet account “Business Assets (low Value)” all items that cost less than $1,000 (GST excl)
3. Allocate to a Balance Sheet account “Business Assets” all items that cost more than $1,000 (GST excl)
4. Calculate the depreciation to be charged and reduce the values of the account in #2 and #3 above and charge the depreciation
from #2 and #3 above to the accumulated depreciation account in line with the worksheets provided in the detail explanation, see
page 12 and 13
5. Advise the Tax Agent of exactly how you have kept the books and provide details.
If the proposed law comes into effect then for a small business (less than $2m turnover)
1. Expense all items that cost less than $6,500 purchased before 31 Dec. 2013 and less than $1,000 (GST excl) for those purchased
after 31 Dec. 2013
2. Allocate all asset purchases over $6,500 (pre 31 Dec. 2013) or $1,000 (post) to a Balance Sheet account “Business Assets General”
3. Calculate the depreciation to be charged and reduce the values of the accounts in #2 above in line with the worksheets provided,
see page 10
4. Advise the Tax Agent of exactly how you have kept the books and provide details
If the answer is NO, they aren’t a Small Business then there is no change to the Accounting for Assets.
Changing thresholds
The thresholds keep changing. For the 2011/12 year it was $1,000 then for the 2012/13 year $6,500 and then for 2013/14 by law it is $6,500
but by announced law it will only be $1,000 from 1 January 2014. Below we discuss the $6,500 write-off and the changed law.
1
There is discussion about the definition of small business based on the turnover level of $2m. This threshold may change soon.
July 2014
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Page 4
Is it an expense?
Is the payment for an item or service that is directly
connected with producing my Taxable Income? Is
it for “Business use”?
Allocate the GST Inclusive cost to loan account or
“Non-Deductible Asset” account
or “Non-deductible expense” account
GST code is “N-T” or not reportable
No
Yes
Will the value of the item or service be used up in
the “day to day” running of the business
(Consumable)? (unofficially: Will it be consumed
in under a year?)
Yes
No
Is the payment a “Repairs & Maintenance”
expense?
Yes
Normal expense: Allocate to a P&L expense
account and claim back GST if applicable.
GST Code is “GST” or “FRE”
To repair something generally means to fix
defects, including renewing parts. It does not
mean totally reconstructing something or
substantial improvements
It is an Asset
July 2014
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Page 5
It is an Asset
Concept of it being a replacement of a previous
asset is irrelevant to the new payment: If it is a
new item, it is a new asset! It may however enable
the write-off of the old asset.
Is the payment a “Replacement” of a previous item?
If so then it is a NEW ASSET.
Yes & / or No
If it cost less than $100 (GST Incl) then claim
immediate deduction. [$90.91 GST excl]
Yes
Claim back any allowed GST credit
and claim
the cost as an expense GST Code: GST or FRE
No
Is the business turnover (total income) more or less
than $ 2 Million (GST Excl)?
More than $2m
July 2014
Turnover is based on:
a. your actual turnover last financial year or
b. if the year before last was less and your
current year is likely to be less
Excluding GST
Less than $2m
PURCHASE Cost < $6,500 (<$1,000) (Excl GST)
then immediate write off (“S1”)
Claim back any GST credit
and
Claim the cost as an expense 100%
GST Code: GST
PURCHASE Cost > $6,500 (>$1,000) (Excl GST)
then “General Business Pool” (“S2”)
Claim back any GST credit
and
Allocate the cost to Asset called
“Business Assets (General)”*
GST Code: CAP
&
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Page 6
More than $2m
Less than $2m
Motor Vehicle Cost > $5,000 (Excl GST)
then “Motor Vehicles” (“MV”) (Prior to 1 January 2014)
Motor Vehicles have an additional concession that
is different to other assets, following 1 July 2012
(until 31 Dec. 13) — see page 9
Explanations: (for business with turnover less than $2m (GST excl):
1. Purchases of < $6,500 (<$1,000) we have said to expense to the P&L.
Some accountants or business owners may still want these captured in assets on the Balance Sheet, in
which case create a separate Asset account “Business Assets claimed”, enter the purchase against this
account, and at the same time enter 100% depreciation against your “Accum Dep” account.
2. We have suggested classifying the assets into 3 accounts in the Balance Sheet
a. Business Assets (General)
b. Motor Vehicles (This account is probably not necessary)
c. Business Assets (Claimed)
[we suggest this is optional as we would expense the items to the P&L]
Businesses / Accountants may wish to see further breakdown of the assets into
“Asset Categories” ie
Business Assets (General)
Plant & Equipment – WDV
“WDV” stands for Written Down Value
Office Equipment – WDV
which is the old version of
Assets at Cost
$
Less Accum Dep ($ )
Motor Vehicles – WDV
= WDV
$
This is closer to what you normally see and would also be acceptable.
3. The “Pool” concept is an Income Tax concept and not necessarily for account reporting, however for
small business we recommend that the Accounting/Reporting treatment mirror the required Income Tax
Treatment. Bookkeepers should allocate and seek guidance from the income tax adviser. “S1”, “S2”
are the Income Tax classes”
July 2014
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Page 7
More than $2m
PURCHASE Cost < $1,000 (Excl GST)
then “Low Value Pool” (O2)
Claim back any GST credit
and
Allocate the cost to Asset called “Business Assets (Low
Value)”
GST Code: CAP
PURCHASE Cost > $1,000 (Excl GST)
Are “normal” assets
Claim back any GST credit
and
Allocate the cost to Asset called “Business Assets - Cost”
GST Code: CAP
or
Explanations: (for business with turnover greater than $2m (GST excl):
1. Purchases of < $1,000 (and >$100 (GST inc)) can be allocated to this “Low Value
Pool” and classified on the balance sheet as such. Some Accountants may not
want the dissection in the reports and hence the “pool” would only be considered
by them in the income tax preparation.
2. We have suggested classifying the assets into 2 main accounts in the Balance
Sheet
a. Business Assets (Low Value) [which you may not see or be required]
b. Business Assets - Cost
Businesses / Accountants may wish to see further breakdown of the assets into
“Asset Categories” ie
Business Assets
Plant & Equipment - Cost
Office Equipment - Cost
Motor Vehicles – Cost
3. The “Pool” concept is an Income Tax concept and not necessarily for account
reporting, however for small business we recommend that the Accounting/
Reporting treatment mirror the required Income Tax Treatment. Bookkeepers
should allocate and seek guidance from the income tax adviser.
July 2014
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Page 8
More than $2m
If the value of assets falls below (<) $1,000 (Excl GST)
Then shift to “Low Value Pool”
Explanations: (for business with turnover greater than $2m (GST excl):
1. Assets whose value reduces to below (<) $1,000 can be re-allocated to the “Low Value Pool”
2. This occurs for the year when the opening value of the asset for the year is below $1,000
3. This may or may not require an alteration to the place where the asset is listed in the accounts – seek
guidance from the business or the accountant.
4. Assets acquired that cost less than $1,000 can be immediately allocated to this pool.
Depreciation Rates
Depreciation Table for <$2 million turnover *
Depreciation Table for >$2 million turnover
Asset
Threshold
Depreciation Period
Depreciation Rate
Asset
Threshold
Depreciation Period
Depreciation Rate
Asset Cost
<$6,500
100% write off
Asset Cost
<$90.91
>$6,500
15% of cost
30% of WDV
Asset Cost
<$1,000
Motor
Vehicle Cost
Motor
Vehicle Cost
<$5,000
100% write off
Asset Cost
>$1,000
Expense at time of
acquisition
Year of acquisition
Subsequent years
diminishing value
Depreciation based on
effective life
100% write off
Asset Cost
Expense at time of
acquisition
Year of acquisition
Subsequent years
diminishing value
Expense at time of
acquisition
Year of acquisition
claim $5,000 + (15%
of cost - $5,000)
Subsequent years
diminishing value
>$5,000
$5,000 write off
15% of cost (less
$5,000)
30% of WDV
18.75% of cost
37.5% of WDV
ATO TR 2014/4
* All thresholds may reduce to $1,000 due to change of law
July 2014
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Page 9
How to keep the books of the “General Business Pool”—
Turnover of less than $2 million (GST excl)
History: Once upon a time all assets were kept as individual assets, recorded individually and maintained on the detailed depreciation
schedule as individual line items. This was the requirement. This recording method still exists and is used significantly in business
records. It is no longer required to this level of detail for small business. In those olden days assets & depreciation were accounted for in
two different accounts: “Cost” and “Accum Depreciation”
Current concept: For Small Business; the assets can be simply added to the pool and the recording grouped, however detailed records
help prove any later disputes and may keep the accounts familiar.
Note: the detailed depreciation schedule IS NOT required – simply the same invoice records.
The General Business Pool is created for all assets over $6,500 (<$1,000) (GST Excl) in cost
The Books and records of the pool: recorded in the account called “Business Assets General”
Opening value of the pool
Depreciation of 30% of that value for the year
Closing value of existing pool
Add
Assets acquired during the year
$
Depreciation of 15% of cost
15% = ($
Value of acquired assets at end of year
$
$
30% = ($
$
)
Less any proceeds from sale of Pool
($
Total value of pool at end of year
$
It is possible and correct for the historic “Cost” and the “Accum Dep” accounts to be merged.
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Add purchases (the cost)
Debit Business Assets General $
Credit Bank/Loans $
Less depreciation
Debit Depreciation Expense $
Credit Business Assets General $
$
If the pool is negative then a profit has been made from sales &/or depreciation previously
expensed has now been recouped and must be recognised as income.
July 2014
)
Last year’s Accounts
Value of the account
Business Assets General $
)
Less proceeds from sale
Debit Bank/Loans etc $
Credit Business Assets General $
If pool value falls below zero
Debit Business Assets General $ $
Credit Profit- Sale Assets (P&L) $
To bring balance up to $Nil
Page 10
The Motor Vehicles Account is created for all MVs over $5,000 (GST Excl) in cost
The Books and records: recorded in the account called “Motor Vehicles”
(Note previous comments about law change: this may only apply until 31 Dec., 2013)
Opening value of Motor Vehicles
$
Depreciation of 30% of that value for the year
30% = ($
Closing value of existing Motor Vehicles
$
Add
Assets acquired during the year
$
Depreciation (for each vehicle) of
1) If new vehicles cost less than $5,000 then the total value &
2) If the new vehicle costs more than $5,000
a. $5,000 +
b. 15% of (Cost less $5,000) or
3) If new law then only 15% of Cost
Value of acquired assets at end of year
$
$
Less Value of Vehicles sold (Cost – Accum Deprecn)
($
Total value of Motor Vehicles at end of year
$
Last year’s accounts
Value of the account
Motor Vehicles $
)
Less depreciation
Debit Deprecn Expense $
Credit Accum Dep Motor Vehicle$
)
We note that an appropriate treatment would be that at the end of each year the balance of the
Motor vehicles account is transferred into the General Business Pool. This treatment works
as after year number one we have a written down value that is depreciated at 30% per year.
Motor Vehicles are not required to be separated after that first year.
July 2014
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Add purchases (cost)
Debit Motor Vehicles $
Credit Bank/Loans $
Less value of sold vehicles
Debit Accum Dep $
Debit Profit – Sale of Assets
Credit Cost of Vehicles $
Proceeds
Debit Bank/etc $
Credit Profit- Sale Assets (P&L) $
Page 11
How to keep the books for the “Low Value Pool”
Turnover of more than $2m (GST Excl)
History: Similarly once upon a time all assets were kept as individual assets, recorded individually and maintained on the
detailed depreciation schedule as individual line items.
Current concept: The low value pool could in effect be one line of a “Running Balance” of the value of “Low Value Pool”
Assets. However detailed records help prove any later disputes.
Last year’s accounts
The Low Value Pool is created for all assets with value under $1,000 (GST Excl)
Value of the account
Business Assets (LV) $
The Books and records of the pool: in account “Business Assets (LV)”
Add purchases
Opening value of the pool
$
Debit Business Assets (LV) $
+
Value of assets shifted to LV Pool
$
Credit Bank/Loans
$
=
Subtotal of opening value
$
Depreciation of 37% of that value for the year 37% = ($
)
Add Transfers into pool at WDV
Closing written down value of existing pool
$
Debit Business Assets (LV) $
Add
Credit Business Assets (cost) $
+
Assets acquired during the year (cost <$1,000) $
&
Depreciation of 18.75% of cost
18.75% = ($
)
Debit Bus. Assets (Accum Dep) $
Value of added assets at end of year

$
Credit Business Assets (LV)
Less any proceeds from sale of Pool
($
Total value of pool at end of year
$
If the pool is negative then zero the pool by moving the negative into income
Db Business Assets (LV)
Cr Profit on Sale of Assets
It is possible and correct for the “Cost” and the “Accum Dep” accounts to be merged.
July 2014
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)
Less depreciation
Debit Depreciation Expense $
Credit Business Assets (LV) $
Less Proceeds from sale
Debit Bank/Loans etc $
Credit Business Assets (LV)$
If pool value falls below Zero
Debit Business Assets (LV) $
Credit Profit- Sale Assets (P&L) $
Page 12
How to keep the books for the Normal Assets >$1,000
Turnover of more than $2m (GST Excl)
History & ALSO current: All assets are to be kept as individual assets, recorded individually
and maintained on the detailed depreciation schedule as individual line items. This was the
requirement & remains the requirement for this level of asset. The cost of Assets &
Depreciation were accounted for in two different accounts: “Cost” and “Accumulated
Depreciation”
Note: the detailed depreciation schedule IS required for businesses with a turnover of >$2
million.
AWHAT’S
control account
foran
Cost
of value
Business
Assetstoisbelow
created
for itover
(GST from
Excl)this
new: Once
asset
decreases
$1,000
can$1,000
be removed
The
bookslist
and
records
of the
“Asset
Cost”
is recorded
in account called “Business Assets–at
detailed
and
allocated
to the
“Low
Value
Pool”
cost”
Opening Balance of Cost of the listed assets
$
Add
Assets acquired during the year
$
Less
Listed cost of any items sold during the year
($
)
Less Listed cost of any items transferred to “Low Value” Pool
($
)
Closing Balance of Cost of the listed assets at end of year
$
A control account for Accumulated Depreciation of those Business Assets is created
The Books and records of the “Accumulated Depreciation” This account is always a Credit balance
recorded in the account called “Business Assets – Accumulated Depreciation”
Opening Balance of Accumulation of the listed assets
$
Add
Depreciation charged on all individual assets per schedule
$
Less
Listed Accum Dep of items sold during the year
($
)
Less
Listed Accum Dep of items transferred to “Low Value” Pool
($
)
Closing Balance of Accum Dep of the listed assets at end of year
$
July 2014
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Last year’s accounts & the
detailed schedule
Business Assets - Cost
$
Add purchases (the cost)
Debit Business Assets - cost $
Credit Bank/Loans
$
Less items sold
Debit Profit on Sale Assets $
Credit Business Assets – Cost $
Less items transferred to LV pool
Debit Business Assets (LV) $
Credit Business Assets - Cost $
Last year’s accounts & the
detailed schedule
Business Assets – Accum Dep $
Add (Credit) depreciation
Debit Depreciation Expense $
Credit Bus. Assets Accum Dep $
Items sold
Debit Business Assets Accum Dep $
Credit Profit- Sale Assets (P&L) $
Items transferred
Debit Business Assets Accum Dep $
Credit Business Assets (LV) $
Page 13
Bookkeeping checklist / Information of work performed in relation to Assets and Depreciation
Business Name: _______________________________
Period Ended ___/___/___
❏ For the purposes of the Uniform Capital Allowance system we understand that this business is considered to be/ not to be a
“Small Business” (turnover less than $2m)
Our review says that for this financial year turnover is $ _______________
❏ All items that have been advised as private have been allocated to
o
o
Sole Trader / Partnership
Owners Drawings Account, or


“Non Deductible Asset” Account or

“Non-deductible expense account
Companies / Trusts

Loan Accounts (GST Inclusive costs)

“Expenses subject to FBT” account

Salary Packaged Items
❏ All items that were acquired as Replacements have been treated as new assets.
❏ All items that cost less than $100 GST Incl have been expensed
Allocation of new assets
Small Business: for year ended 6/13 threshold of $6,500
st
Subject to legislation change: threshold of $6,500 to Dec 31 and then $1,000
❏ New Items with cost less threshold Expensed to account ____________
❏ New Items with cost over threshold Allocated to account ____________
❏ New Items with life of more than 25 years are Allocated to account ___________
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Page 14
Large Business
❏ New Items with cost less $1000 (GST Excl) Allocated to account
____________
❏ New Items with cost over $1000 (GST Excl) Allocated to account
____________
Items for Tax Agent Review
❏ All “consumables” where they are not assets but operating expenses have been expensed. Accounts of note that may require
your review are:
❏ The Repairs & Maintenance account has items that were considered by us to be items that were not Assets.
Depreciation Journals
We have posted Depreciation Journals in accordance with the calculations shown on the next page
(Attach the Information Sheet – How to keep records of Assets)
❏ Small Business:
Debit Depreciation Expense
a/c no ___________for $_____________
Credit “Business Assets General”
a/c no ___________for $ _____________
Credit “Business Assets (Long Life)”
a/c no ___________for $ _____________
❏ Large Business
Debit Depreciation Expense
a/c no ___________for $ _____________
Credit “Business Assets (Low Value)”
a/c no ___________for $ _____________
Credit “Business Assets – Accum Deprecn” a/c no ___________for $ _____________
July 2014
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Page 15
Institute of Certified Bookkeepers
Making you count
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www.icb.org.au
[email protected]
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