Managing fixed assets and calculating depreciation
There may be occasions on which you wish to dispose of part of an asset or write off a number of assets you acquired in bulk.
- A business or individual may sell part of a block of land; or
- A hotel chain may write off 20 of 100 chairs it bought in bulk when they were damaged beyond use
Many businesses have the need to connect assets together and treat some as components of a parent asset.
An example of this would be the tray on the back of a truck which could be replaced independently of the rest of the truck.
It’s amazing we calculated this year’s depreciation in just a matter of minutes!
Veenith Singh - Group Finance Operations Manager, Beca Group
Second element of cost
Following on from components, in some cases, these can be treated as a “second element of cost” of the parent asset with specific tax rules applying to these grouped assets.
Other examples of needing to apply the “second element of cost” rules are for items such as installation costs which should just be added to the original cost of the asset.
Work in progress/assets under construction
Whilst the vast majority of fixed assets that are put into service are acquired in a single event, there are times where an asset is composed of a number of purchases that are made over time before the combined product is put into use.
Different cost basis for book and tax
There are plenty of scenarios where (as counter-intuitive as it may sound), different cost bases and dates of first use are needed in the tax and accounts books.