Initial cost of fixed assets: important details

Fixed assets are the material resources necessary for a company to conduct its activities. This could be equipment, transport, real estate, machinery and other objects. Expenses incurred during their acquisition, as well as labor tools, are subject to accounting and tax accounting. For accounting purposes, a special indicator is used - the initial cost of fixed assets (OCF). We’ll talk further about what it is, how to define it and how to take into account fixed assets in tax and accounting.

Accounting and tax accounting of fixed assets

These can be shopping and entertainment centers, non-residential premises intended for offices, retail and wholesale trade facilities, catering and household facilities.

For example, in Moscow, property tax is charged only for objects whose area is more than 500 square meters.

The tax rate is determined based on the average annual value of property that is recognized as an object of taxation, and in relation to individual objects, the tax base is determined by their cadastral value. A tax is considered established if:

- those who pay tax; — elements subject to tax; - something that is subject to taxation; — tax base, period, rate; - calculation procedure.

Fixed assets and income tax

A direct tax is one that is paid to the federal budget - this is a tax on the profit of an enterprise or organization. This type of tax and the procedure for paying it are fully set out in Chapter 25 of the Tax Code. The profit of companies, organizations, enterprises is subject to taxation. Profit is considered income, excluding expenses, which are taken into account for income tax purposes.

Expenses are any expenses that are made to carry out work aimed at generating income.

Income tax is calculated as follows: contingent income minus permanent tax liability, plus tax asset and minus deferred liability.

Tax on LLC fixed assets

There are four types of tax system: - simplified system (USNO); — traditional system (OSNO); — unified agricultural tax; — single tax on imputed income (UTII).

The head of an LLC does not have the right to choose the type of tax from the last two, that is, agricultural tax and UTII. If the management of the LLC has chosen OSNO, then it should select a very experienced accountant and prepare special computer software. This type of tax is considered the most complex. It includes: VAT, income tax, property tax and unified social tax.

1. Depreciable property is distributed into depreciation groups in accordance with its useful life. The useful life is the period during which an item of fixed assets or an item of intangible assets serves to fulfill the goals of the taxpayer's activities.

Modernization (reconstruction) of low-value facilities

The issue of accounting for tax expenses for the reconstruction and modernization of property, the initial cost of which does not exceed 100,000 rubles, is ambiguous. Such objects are not recognized as depreciable property, and their cost can be recognized as part of material costs at a time at the time of commissioning. The Tax Code of the Russian Federation does not determine the procedure for accounting for expenses for the reconstruction and modernization of such property. The position of the Russian Ministry of Finance on this issue is contradictory.

Previously, specialists from the financial department allowed the possibility of one-time recognition of expenses for modernization (reconstruction) of such property in full for profit tax purposes as part of other expenses associated with production and sales (Letter of the Ministry of Finance of Russia dated October 5, 2010 No. 03-03-06/1/ 627, dated 04.10.2010 No. 03-03-06/1/624, dated 25.03.2010 No. 03-03-06/1/173).

However, the department's position has now changed. The Letter of the Ministry of Finance of Russia dated 02/07/2017 No. 03-03-06/1/7342 contains the conclusion that if the initial cost of property after reconstruction exceeds 100,000 rubles, such property should be classified as depreciable and its cost should be taken into account as expenses by depreciation charges.

A similar position was stated 15 years ago, in Letter of the Ministry of Finance of Russia dated April 14, 2005 No. 03-01-20/2-56: if, as a result of modernization, an object is transferred to depreciable property for tax purposes, then the taxpayer takes it into account in tax accounting according to the restoration cost, including modernization costs, without taking into account (i.e., minus) the initial cost, previously written off as material costs.

Fixed assets

The useful life is determined by the taxpayer independently on the date of commissioning of this item of depreciable property in accordance with the provisions of this article and taking into account the classification of fixed assets approved by the Government of the Russian Federation.

The taxpayer has the right to increase the useful life of a fixed asset after the date of its commissioning if, after reconstruction, modernization or technical re-equipment of such an object, its useful life has increased. In this case, an increase in the useful life of fixed assets can be carried out within the time limits established for the depreciation group in which such fixed assets were previously included.

If, as a result of reconstruction, modernization or technical re-equipment of a fixed asset item, its useful life has not increased, the taxpayer takes into account the remaining useful life when calculating depreciation.

Capital investments in leased fixed assets specified in paragraph one of paragraph 1 of Article 256 of this Code are depreciated in the following order:

capital investments, the cost of which is reimbursed to the lessee by the lessor, are depreciated by the lessor in the manner established by this chapter;

capital investments made by the lessee with the consent of the lessor, the cost of which is not reimbursed by the lessor, are depreciated by the lessee during the term of the lease agreement based on depreciation amounts calculated taking into account the useful life determined for leased fixed assets or for capital investments in these objects in accordance with the classification of fixed assets approved by the Government of the Russian Federation.

Capital investments in fixed assets received under a gratuitous use agreement, specified in paragraph one of paragraph 1 of Article 256 of this Code, are depreciated in the following order:

capital investments, the cost of which is reimbursed to the borrower organization by the lending organization, are depreciated by the lending organization in the manner established by this chapter;

capital investments made by the borrowing organization with the consent of the lending organization, the cost of which is not reimbursed by the lending organization, are depreciated by the borrowing organization during the term of the gratuitous use agreement based on depreciation amounts calculated taking into account the useful life determined for the received fixed assets or for capital investments in specified objects in accordance with the classification of fixed assets approved by the Government of the Russian Federation.

2. The useful life of an intangible asset is determined based on the validity period of a patent, certificate and (or) other restrictions on the period of use of intellectual property objects in accordance with the legislation of the Russian Federation or the applicable legislation of a foreign state, as well as on the basis of the useful life of intangible assets stipulated by the relevant agreements. For intangible assets for which it is impossible to determine the useful life of the intangible asset, depreciation rates are established based on a useful life of 10 years (but not more than the period of activity of the taxpayer).

For intangible assets specified in subparagraphs 1 - 3, 5 - 7 of paragraph three of paragraph 3 of Article 257 of this Code, the taxpayer has the right to independently determine the useful life, which cannot be less than two years.

3. Depreciable property is combined into the following depreciation groups:

the first group - all short-lived property with a useful life from 1 year to 2 years inclusive;

second group - property with a useful life of more than 2 years up to 3 years inclusive;

third group - property with a useful life of more than 3 years up to 5 years inclusive;

fourth group - property with a useful life of over 5 years up to 7 years inclusive;

fifth group - property with a useful life of over 7 years up to 10 years inclusive;

sixth group - property with a useful life of over 10 years up to 15 years inclusive;

seventh group - property with a useful life of over 15 years up to 20 years inclusive;

eighth group - property with a useful life of over 20 years up to 25 years inclusive;

ninth group - property with a useful life of over 25 years up to 30 years inclusive;

tenth group - property with a useful life of over 30 years.

4. The classification of fixed assets included in depreciation groups is approved by the Government of the Russian Federation.

5. Intangible assets are included in depreciation groups based on the useful life determined in accordance with paragraph 2 of this article.

6. For those types of fixed assets that are not indicated in depreciation groups, the useful life is established by the taxpayer in accordance with the technical conditions or recommendations of the manufacturers.

7. An organization acquiring used fixed assets (including in the form of a contribution to the authorized (share) capital or by way of succession during the reorganization of legal entities), in order to apply the linear method of calculating depreciation for these objects, has the right to determine the depreciation rate according to this property, taking into account the useful life reduced by the number of years (months) of operation of this property by the previous owners. In this case, the useful life of these fixed assets can be defined as their useful life established by the previous owner of these fixed assets, reduced by the number of years (months) of operation of this property by the previous owner.

If the period of actual use of this fixed asset by the previous owners turns out to be equal to its useful life, determined by the classification of fixed assets approved by the Government of the Russian Federation in accordance with this chapter, or exceeds this period, the taxpayer has the right to independently determine the useful life of this fixed asset, taking into account the requirements safety precautions and other factors.

8. For items of depreciable property specified in paragraph one of paragraph 3 of Article 259 of this Code, depreciation is calculated separately for each item of property in accordance with its useful life in the manner established by this chapter.

9. For the purposes of this chapter, depreciable property is taken into account at its original cost, determined in accordance with Article 257 of this Code, unless otherwise provided by this chapter.

The taxpayer has the right to include in the expenses of the reporting (tax) period expenses for capital investments in the amount of no more than 10 percent (no more than 30 percent in relation to fixed assets belonging to the third to seventh depreciation groups) of the original cost of fixed assets (with the exception of fixed assets received free of charge), as well as no more than 10 percent (no more than 30 percent in relation to fixed assets belonging to the third to seventh depreciation groups) of expenses incurred in cases of completion, additional equipment, reconstruction, modernization, technical re-equipment, partial liquidation of fixed assets funds and amounts of which are determined in accordance with Article 257 of this Code.

If the taxpayer uses this right, the corresponding fixed assets, after their commissioning, are included in depreciation groups (subgroups) at their original cost minus no more than 10 percent (no more than 30 percent in relation to fixed assets belonging to the third to seventh depreciation groups ) initial cost included in the expenses of the reporting (tax) period, and the amounts by which the initial cost of objects changes in cases of completion, additional equipment, reconstruction, modernization, technical re-equipment, partial liquidation of objects are taken into account in the total balance of depreciation groups (subgroups) ( change the initial cost of objects for which depreciation is calculated using the straight-line method in accordance with Article 259 of this Code) minus no more than 10 percent (no more than 30 percent in relation to fixed assets belonging to the third to seventh depreciation groups) of such amounts.

If the fixed asset, in respect of which the provisions of the second paragraph of this paragraph were applied, is sold earlier than after five years from the date of its putting into operation to a person who is interdependent with the taxpayer, the amount of expenses previously included in the expenses of the next reporting (tax ) period in accordance with paragraph two of this paragraph, are subject to inclusion in non-operating income in the reporting (tax) period in which such sale was made.

10. Property received (transferred) for financial lease under a financial lease agreement (leasing agreement) is included in the appropriate depreciation group (subgroup) by the party for whom this property should be accounted for in accordance with the terms of the financial lease agreement (leasing agreement).

11. Invalid as of January 1, 2013

12. Used depreciable property items acquired by the organization are included in the depreciation group (subgroup) in which they were included from the previous owner.

13. If an organization that has established in its accounting policy the use of a non-linear depreciation method applies increasing (decreasing) coefficients to depreciation rates in accordance with Article 259.3 of this Code and (or) incurs expenses for scientific research and (or) development projects provided for subparagraph 1 of paragraph 2 of Article 262 of this Code, objects of depreciable property to which such coefficients are applied, as well as objects of depreciable property used to carry out scientific research and (or) development work, form a subgroup within the depreciation group and accounting for such depreciation groups and subgroups are conducted separately. All rules for creating or liquidating a group, increasing or decreasing the total balance of the group apply to such subgroups, and the depreciation rate, specified using an increasing (decreasing) coefficient, is applied to them.

The application of increasing (decreasing) coefficients to the depreciation rates of depreciable property objects entails a corresponding reduction (increase) in the useful life of such objects. At the same time, depreciation subgroups for objects of depreciable property, to the depreciation rates of which increasing (decreasing) coefficients are applied, are formed as part of the depreciation group based on the useful life determined by the classification of fixed assets approved by the Government of the Russian Federation, without taking into account its increase (decrease).

In tax accounting, for the purposes of calculating depreciation, fixed assets are combined into ten groups depending on their useful life (Table 2.2).

Table 2.2

Depreciation groups of fixed assets

Continuation of Table 2.2

The useful life is the period during which an item of fixed assets serves to fulfill the goals of the taxpayer’s activities.27

For those types of fixed assets that are not indicated in depreciation groups, the useful life is established by the taxpayer in accordance with the technical conditions or recommendations of the manufacturing organizations.

For fixed assets put into operation before the entry into force of Chapter 25 of the Tax Code of the Russian Federation, their useful life is established as of January 1, 2002 based on the remaining useful life. The remaining useful life is calculated as the difference between the useful life determined in accordance with the Classification of fixed assets and the actual service life as of January 1, 2002.

Depreciation for tax purposes is calculated monthly separately for each fixed asset item. Just like in accounting, depreciation is calculated from the 1st day of the month following the month the facility was put into operation.

Depreciation accrual stops from the 1st day of the month following the month when the cost of the fixed asset item was completely written off or when the item was removed from the depreciable property for any reason.

In a number of cases, fixed assets are excluded from depreciable property, namely:

— transferred (received) under contracts for free use;

— transferred by decision of the organization’s management to conservation for a period of more than three months;

— by decision of the organization’s management, undergoing reconstruction and modernization for a period of more than 12 months.

The amount of depreciation charges is determined based on the initial (residual) value of fixed assets, useful life and the depreciation method used.

For profit tax purposes, depreciation is recognized, calculated using one of the following methods:

— linear method;

- nonlinear method.

The choice of method is made by the organization independently. At the same time, only the linear depreciation method is applied to buildings, structures, and transmission devices included in the eighth to tenth depreciation groups.28

The selected method is applied to the depreciable property throughout the entire period of depreciation for this object. When applying the linear method, the amount of depreciation accrued for one month is determined as the product of its original (replacement) cost and the depreciation rate. In this case, the depreciation rate for each item of depreciable property is determined by formula 2.1.:

K=(1/n)*100%, (2.1)

where K is the depreciation rate as a percentage of the original (replacement) cost of the depreciable property;

n is the useful life of a given depreciable property item, expressed in months.

For fixed assets put into operation before January 1, 2002, their residual value determined as of January 1, 2002 is used when calculating depreciation charges.

The depreciation rate is calculated based on the remaining useful life, also determined as of January 1, 2002.

The linear method of calculating depreciation in tax accounting corresponds to the linear method of calculating depreciation in accounting. In this case, the amount of depreciation charges in each month of operation of the facility will be the same.

When applying the non-linear method, the amount of depreciation accrued for one month is determined as the product of the residual value of the depreciable property and the depreciation rate.

OS repair and reconstruction

What is of interest to tax authorities?

Sooner or later, any organization needs to repair, modernize or reconstruct fixed assets. Determining the line between repair and reconstruction (modernization) in practice can be quite difficult. Often, the issue of classifying expenses incurred becomes the subject of a dispute with the tax authorities, as evidenced by numerous arbitration practices (Resolutions of the Volga-Vyatka District Arbitration Court dated 08.08.2017 No. F01-3175/2017, Moscow District Arbitration Court dated 02.06.2017 No. F05-22249/2016 , AS of the North-Western District dated October 12, 2016 No. F07-8220/2016, dated March 16, 2016 No. F07-2576/2016, etc.).

During audits, tax authorities show increased interest in the organization’s expenses associated with repair work. Close attention to such expenses is explained by the following: costs for current or major repairs at a time in full are taken into account in expenses when calculating income tax (clause 1 of Article 260, clauses 2, 5 of Article 272 of the Tax Code of the Russian Federation).

Expenses for modernization or reconstruction increase the cost of the fixed asset and are written off as expenses through depreciation (clause 2 of Article 257, Articles 258, 259 of the Tax Code of the Russian Federation).

It is obvious that tax inspectors are looking for every opportunity to reclassify the repair of an operating system as its modernization or reconstruction and, as a result, charge additional income tax.

Let's understand the terminology.

OS reconstruction

In accordance with paragraph 2 of Art. 257 of the Tax Code of the Russian Federation, reconstruction includes the reconstruction of existing fixed assets associated with improving production, increasing its technical and economic indicators and in order to increase production capacity, improve quality and change the range of products.

OS upgrade

OS modernization includes work caused by a change in the technological or service purpose of equipment, a building, structure or other object of depreciable fixed assets, increased loads and (or) other new qualities.

OS repair

The concept of “repair” is absent in tax legislation. If we start from the definitions of reconstruction and modernization, we can draw the conclusion “from the opposite”: repair work does not give the OS object new qualities compared to its original state (in particular, it does not increase production space and capacity).

Thus, repair work should include a set of measures aimed at maintaining or restoring the original operational qualities of the OS object.

What does the Ministry of Finance think?

According to experts from the financial department (Letters of the Ministry of Finance of Russia dated March 24, 2010 No. 03-11-06/2/41, dated November 23, 2006 No. 03-03-04/1/794) when defining the terms “major repairs” and “reconstruction” should be based on:

• Regulations on carrying out scheduled preventative repairs of industrial buildings and structures MDS 13-14.2000, approved by Decree of the USSR State Construction Committee dated December 29, 1973 No. 279;
• Departmental Construction Standards (VSN) No. 58-88 (R) “Regulations on the organization and implementation of reconstruction, repair and maintenance of buildings, municipal and socio-cultural facilities”, approved by Order of the State Committee for Architecture under the USSR State Construction Committee dated November 23, 1988 No. 312;
• Letter of the USSR Ministry of Finance dated May 29, 1984 No. 80 “On the definition of the concepts of new construction, expansion, reconstruction and technical re-equipment of existing enterprises.”

Despite the venerable age of these documents, judges often turn to them when considering disputes between tax authorities and taxpayers (Resolution of the Administrative Court of the North Caucasus District dated 02/08/2019 No. F08 11565/2018, Resolution of the Arbitration Court of the Ural District dated 03/05/2019 No. F09-129 /19).

The purpose of the work is a decisive factor in classification

From the analysis of the above documents, we can conclude that the decisive factor in the classification of work is the purpose of its implementation, as well as the consequences for the fixed asset.

In particular, the purpose of repair is to eliminate faults (replacement of worn or broken parts (structures)), the presence of which makes the operation of the fixed asset impossible or dangerous.

The purpose of reconstruction (modernization) is to improve (increase) the initially adopted standard indicators of the functioning of an OS object, for example, increasing the useful life, increasing capacity, etc.

How to avoid claims from the Federal Tax Service?

To avoid claims from tax authorities when carrying out OS repairs, you must have the following documents available:

• a defect sheet, which indicates all damage to the OS and justifies the need for repair work;
• order from the manager to carry out repairs;
• contract for repair work (if the repair is carried out by a third party);
• repair plans (schedules), repair cost estimates, invoices for the internal movement of fixed assets and for the release of materials for repairs (if the organization carries out repairs independently).

If repairs and reconstruction (modernization) are carried out simultaneously, then the primary documents must be drawn up in such a way that it is possible to organize separate accounting and tax accounting of costs for the types of work performed.

Thus, the more documents confirming the repair (official memos, acts, orders), the less likely it is that the tax inspectorate will reclassify repair costs as reconstruction (modernization) costs.

Accounting

OS repair is reflected in accounting records with the following entries:

• D 20 (26, 44) K 60 - repairs were carried out by contractors;
• D 20 (23, 26, 44) K 10 (02, 69, 70) - repairs were carried out on our own.

The accounting entries for the reconstruction (modernization) of fixed assets are as follows:

• D 08 K 60 (10, 23, 69, 70) - reflects the costs of reconstruction (modernization) of the OS;
• D 01 K 08 - the initial cost of the operating system has been increased.

Please note that depreciation after modernization (reconstruction) of fixed assets is calculated differently in accounting and tax accounting (clause 60 of the Guidelines for accounting for fixed assets, clause 2 of Article 259.1 of the Tax Code of the Russian Federation). The accrual formulas are presented in Figure 1.

Figure 1. Depreciation after modernization in accounting and tax accounting

Specifics of taxation of fixed assets

The depreciation rate for a depreciable property is determined by formula 2.2:

K = (2/n)*100%, (2.2)

where K is the depreciation rate as a percentage of the residual value applied to this item of depreciable property.

Moreover, from the month following the month in which the residual value of the depreciable property reaches 20% of the original (replacement) cost of this object, depreciation on it is calculated in the following order:

— the residual value of the depreciable property for the purpose of calculating depreciation is fixed as its base value for further calculations;

— the amount of depreciation accrued for one month in relation to a given item of depreciable property is determined by dividing the base cost by the number of months remaining before the expiration of the useful life of this item. The month in which the residual value is fixed as the base value is the month following the month in which the residual value reaches a value equal to or less than 20% of the original cost.

The Tax Code of the Russian Federation in some cases provides for the application of increasing coefficients to the established depreciation standards. At the same time, increasing coefficients are set depending on the conditions of use of fixed assets and types of taxpayers:

— in conditions of an aggressive environment or increased shifts;

— fixed assets that are leased items.29

An aggressive environment is understood as a set of natural or artificial factors, the influence of which causes increased wear (aging) of fixed assets during their operation.

Working in an aggressive environment is equivalent to the presence of fixed assets in contact with an explosive, toxic or other aggressive technological environment, which can serve as the cause (source) of initiating an emergency.

If, in conditions of an aggressive environment and (or) increased shifts, a fixed asset item acquired (transferred) under leasing is used, then the taxpayer can apply either the coefficients provided for under the leasing agreement, or increasing coefficients according to the operating conditions of the object; this approach is determined by the requirement to apply leasing coefficients and according to operating conditions only to basic depreciation.

For passenger cars and passenger minibuses with an initial cost of more than 300,000 and 400,000 rubles, respectively, the basic depreciation rate is applied with a reduction factor of 0.5. The use of reduced depreciation rates is allowed only from the beginning of the tax period and throughout the entire tax period and must be enshrined in the accounting policy for tax purposes.

Depreciation charges for tax purposes are included in the expenses of the reporting period depending on the method used by the organization to determine income and expenses.

Under the accrual method, depreciation is recognized as an expense on a monthly basis based on the amount of accrued depreciation, calculated in accordance with the procedure established by Articles 259 and 322 of the Tax Code of the Russian Federation.

Under the cash method, depreciation is also taken into account as an expense in the amounts accrued for the reporting (tax) period. In this case, depreciation is calculated only on fixed assets paid for by the taxpayer.

The amount of depreciation charges calculated in accordance with the requirements of Chapter 25 of the Tax Code of the Russian Federation differs from its value in accounting in the following cases:

— when using different methods of depreciation;

- due to differences in the order of formation of the initial cost;

- if the organization has fixed assets acquired before January 1, 2002. For the specified fixed assets in accounting, depreciation is calculated in the order that was applied before January 1, 2002;

- due to a one-time write-off in tax accounting as expenses of the reporting period of capital investments in an amount not exceeding 10% of the initial cost of commissioned fixed assets and expenses incurred in cases of completion, retrofitting, modernization, technical re-equipment, partial liquidation.

If accounting data cannot be used in tax accounting, the calculation of depreciation deductions should be carried out in a special tax accounting register.

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OS in accounting

Fixed assets (FPE) are equipment and other expensive property that an organization uses for more than a year. Let me remind you that the limit on the cost of fixed assets in tax accounting must exceed 100 thousand rubles, and in accounting - 40 thousand rubles. At the same time, in the accounting policy, the accounting limit can be reduced (clause 1 of Article 257 of the Tax Code of the Russian Federation, clause 4 of PBU 6/01).

It should be noted that in accounting, for the acceptance of an asset as fixed assets, the fact that the object was put into operation does not matter. An asset is accepted for accounting as fixed assets if the four conditions given in clause 4 of the Accounting Regulations “Accounting for Fixed Assets” PBU 6/01, approved by Order of the Ministry of Finance of Russia dated March 30, 2001 No. 26n, are simultaneously met. One of the conditions is the purpose of the object for use in the production of products when performing work or providing services, for the management needs of the organization.

Fixed assets in accounting are reflected in account 01: by debit - receipt, by credit - write-off.