Fixed assets in business activities
Fixed assets are an integral part of almost every company. It rarely happens that an entrepreneur running his own business does not use at least one item that would constitute a fixed asset. The article explains the most important issues related to fixed assets in the company.
Fixed assets - definition
Fixed assets are tangible assets with the following features:
- they are owned or jointly owned by the entrepreneur,
- their value exceeds PLN 10,000, and the expected useful life is longer than 1 year,
- they are complete, fit for use and used for the needs of business activities.
Fixed assets commissioned for use under a rental or lease agreement are included in the fixed assets of only one of the parties.
Fixed assets are in particular:
- real estate - including land, perpetual usufruct right to land, structures and buildings, as well as separate owned premises, cooperative ownership right to a flat and a cooperative right to a business premises;
- machines, devices, means of transport and other things;
- improvement in foreign fixed assets;
In addition, tangible assets are classified as fixed assets under construction, which are fixed assets during their construction, assembly or improvement of an existing fixed asset (Article 3 (1) (16) of the Act).
Costs related to the construction of a fixed asset or adaptation of a new fixed asset for use should not be included in the KPiR on an ongoing basis.
KŚT or the classification of fixed assets
Due to the division of fixed assets according to three levels, the structure of KŚT symbols is as follows:
I1I - group
I1I2I - subgroup
I1I2I3I - type
Within the first of the above-mentioned levels, 10 single-digit groups are distinguished:
0 - land;
1 - buildings and premises as well as the cooperative right to the business premises and the cooperative ownership right to the residential premises;
2 - civil engineering structures;
3 - boilers and power machines;
4 - machines, devices and apparatus for general use;
5 - specialized machines, devices and apparatuses;
6 - technical devices;
7 - means of transport;
8 - tools, instruments, movables and equipment, not elsewhere classified;
9 - livestock.
Improvements in foreign fixed assets are classified in appropriate groups of KŚT, depending on the fixed asset they relate to.
Initial value of fixed assets
The initial value of fixed assets is considered to be:
- purchase price - for the purchase of ŚT for consideration, determined at the level of the purchase price increased by the costs directly related to it and the costs incurred for placing the asset on the market,
- purchase price increased by the value of the income from the benefit in kind (initial value = purchase price + reduced value) - in the case of a partially paid acquisition,
- manufacturing cost - in case of own production of ŚT,
- market value as at the date of purchase - as part of inheritance, donation or otherwise free of charge (unless the concluded contract specifies a lower value),
- the value of individual fixed assets and intangible assets determined by the taxpayer, but not higher than their market value - by receiving property in connection with the liquidation of a legal person (unless previously made to this legal person as a non-cash contribution in the form of an enterprise or its organized part ).
In the case of acquisition of a fixed asset in the form of a non-cash contribution (in-kind) made to a company that is not a legal person, its initial value is:
- the initial value from which the depreciation was made - if the subject of the contribution was depreciated (accordingly, this principle applies to an asset made in the form of an in-kind contribution (in-kind) to a company that is not a legal person by a partner who received this component as a result of the liquidation of a non-legal entity a legal person or withdrawal from such a company),
- value of expenses incurred for the acquisition or production of the subject of contribution, not included in tax deductible costs in any form - if the subject of the contribution was not depreciated (the rule applies accordingly to an asset made in the form of a non-cash contribution (in-kind) to a company that is not a legal person by a partner, which the component received as a result of the liquidation of a company that is not a legal person or withdrawal from such a company,
- market value - if it is impossible to determine the expenses for the purchase or production of the subject of the contribution by the contributing partner, who is a natural person, and the subject of the contribution was not used by the contributor in his business activity, with the exception of intangible assets produced by the partner on his own.
OT document - acceptance of a fixed asset for use
The OT document confirms that a fixed asset has been recorded as an asset of the enterprise. It should contain elements specified in the provisions on accounting evidence and data resulting from accounting practice, that is:
- the name and address of the issuing body,
- consecutive number with the date of issue,
- the name of the fixed asset, its characteristics, value, depreciation rate, KŚT symbol and inventory number,
- delivery note number and date,
- place of use (destination),
- signatures of the team accepting the fixed asset (in the case of sole proprietorship, the signature of the taxpayer).
Each company can individually determine the detailed rules for documenting admissions to the accounting records of fixed assets.
Fixed assets - depreciation
What is Depreciation?
Expenses incurred in connection with the acquisition (or production) of fixed assets are recognized as tax deductible costs gradually, over the entire period of their use, by means of depreciation write-offs. In this way, it is possible to show the systematic and planned loss of value of individual components of the company's assets.
Depreciation of fixed assets - deadlines
Pursuant to the Accounting Act, depreciation begins no earlier than after the asset is accepted for use (remember to follow the rules of the selected depreciation method), and its completion - no later than when the value of depreciation or amortization write-offs are equal to the initial value of the asset or earmarking it for liquidation, sale or finding its shortage, possibly taking into account the net selling price of the remainder of the fixed asset anticipated during liquidation.
Depreciation of low-value fixed assets
Fixed assets with a value below PLN 10,000 may or may not be depreciated. The taxpayer may include them directly in the company's tax deductible costs in the month they are put into use.
What should not be depreciated:
- land and perpetual usufruct rights to land;
- residential buildings with cranes or residential premises located in them, which are used for business activity or are leased or rented under a contract (if the taxpayer does not decide to depreciate them);
- works of art and museum exhibits;
- goodwill created in a different way than specified in art. 22b paragraph. 2 point 1;
- assets that are not used as a result of suspension of business activities under the provisions on suspension of business activities or cessation of activities in which these items were used (are not subject to depreciation from the month following the month in which such activities were suspended or discontinued).
Methods of depreciation of fixed assets - comparison
linear depreciation method
declining depreciation method
progressive depreciation method
one-time depreciation method (de minimis aid)
applying the method in practice
- the simplest and most frequently chosen method of depreciation
- the second most popular method of depreciation, but intended only for selected groups of KŚT
- this method is not used for the KŚT group:
> 1 and 2;
> 3-6 and 8
(FA which are not machines and devices)
- rarely used
- not for every entrepreneur and not for all fixed assets (intended for assets included in the 3-8 KŚT group, excluding passenger cars)
- even depreciation write-offs from the initial value of the fixed asset
- depreciation begins in the first month following the month in which the fixed asset was entered into the fixed assets register and is made until the month in which the depreciation is equalized with the initial value or in which the fixed asset is put into liquidation
- high write-offs in the first few years (in line with the assumption that the economic value of a fixed asset decreases with time)
- write-offs have a growing tendency (it assumes that the aging of a given object causes an increase in the costs of its operation, which may be caused, for example, by frequent renovation or repairs)
- one depreciation write-off in the amount of 100% of the initial value of the fixed asset
- depreciation may take place in the month of entering the fixed asset into the records
- determined on the basis of the KŚT
- if certain requirements are met, the legislator provides for the possibility of reducing or increasing the rate
- is determined on the basis of the KŚT, which is increased by a specific factor (not higher than 2.0)
- established on the basis of the KŚT, which is increased by a certain factor
- 100 %
in the case of fixed assets:
- entered in the taxpayer's records for the first time,
- meeting the statutory definition of an improved or used fixed asset, it is possible to apply individual rates enabling faster depreciation
- starting from the year in which the depreciation calculated using the degressive method would be lower than the depreciation calculated using the straight-line method, the method is transferred to the straight-line method (otherwise this method cannot be changed voluntarily)
- allows you to quickly generate high tax costs
- addressed to entrepreneurs who, for the first few years from the introduction of a fixed asset to the records, suffer from a loss from running a business
- allows you to partially postpone the recognition of a cost
- is intended only for:
> for taxpayers who started their business activity - the limit of one-off depreciation is EUR 50,000
> small taxpayers whose gross sales revenues did not exceed the PLN equivalent of EUR 2,000,000 in the previous tax year.
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De minimis aid - required documents
The decision to take advantage of de minimis aid is made by the taxpayer independently. This means that in order to make a one-off depreciation from the de minimis aid, he does not have to ask for the approval of the office. On the other hand, you should go to the tax authority for a certificate of using de minimis aid. Along with the application for such a certificate, the following documents must also be submitted:
- a document confirming the purchase of a fixed asset with a proof of payment,
- fixed assets register,
- proof of making depreciation write-offs (e.g. a copy of the KPiR),
- a declaration of the depreciation method that would be adopted for the fixed asset if one-time depreciation had not been used,
- copies of certificates of de minimis aid obtained during the current calendar year and the two preceding calendar years or a declaration on the amount of de minimis aid received in this period or a declaration of not receiving de minimis aid in this period,
- information necessary to grant de minimis aid regarding the applicant and the business activity conducted by him as well as the amount and purpose of de minimis aid.
The decision to use de minimis aid in the form of one-off depreciation depends on the taxpayer himself. The tax authority only has to verify that the entrepreneur has met all the conditions (upon receipt of an application for such assistance along with the necessary regulations).
Depreciation of an asset in the event of suspension of operations
Along with the suspension of activities (as provided for in Article 22c (5) of the Personal Income Tax Act), depreciation of fixed assets must also be suspended. Assets are not depreciated from the month following the month in which the activity was suspended until its resumption.
Records of fixed assets
All assets (acquired, manufactured, rented) must be entered in the register of fixed assets in the month of putting them into service. Records can be kept, for example, in the form of a booklet purchased from a job bookshop, cards with computer-printed or hand-drawn tables. Entries to it are made on the basis of documents which show the initial value of the recorded assets. The records themselves should therefore contain:
- ordinal number,
- date of purchase and acceptance for use,
- type of document confirming the acquisition,
- determination of a fixed asset or intangible and legal value,
- symbol of the Classification of Fixed Assets,
- initial value,
- depreciation rate,
- the amount of the depreciation write-off for a given tax year and cumulatively for the period of these write-offs, including when the asset was ever entered into the register (list), then removed from it and re-entered,
- updated initial value,
- the updated amount of depreciation,
- upgrade value that increases the starting value
- the date of liquidation together with the reason, or the date of disposal.
When fixed assets are not entered into the company's records, depreciation write-offs do not constitute tax deductible costs.
Investments in foreign fixed assets
Investments in third-party fixed assets are expenditures incurred on someone else's fixed asset, which is used by the company only on the basis of a concluded contract (rental, lease, leasing, lending) and does not constitute its property. The following conditions must be met:
- the sum of expenses incurred for its improvement (reconstruction, extension, reconstruction, adaptation or modernization) will exceed PLN 10,000 in a given tax year,
- the above-mentioned expenses will increase the value in use as compared to the value on the day it is put into use (measured in particular by the period of use, production capacity, quality of products obtained with the help of improved fixed assets and the costs of their operation).
In the case of sale of investments in external fixed assets, their non-depreciated part constitutes tax deductible costs.
Fixed asset liquidation
In order to liquidate a fixed asset, an accounting voucher LT must be prepared, on the basis of which the company's tangible assets are withdrawn from the records. This document contains the following data:
- the name of the unit where the LT is issued and its full address,
- consecutive number of the proof,
- date of issue,
- the name of the fixed asset,
- the inventory number of the fixed asset,
- a decision of the liquidation commission stating the reason and method of liquidation of the fixed asset,
- signatures of members of the liquidation commission,
- signature of the employee responsible for the management of fixed assets in the unit,
- signature of an authorized accounting employee,
- signature of the head of the unit,
- comments on the liquidated fixed asset.
Basically, in the liquidation of fixed assets, their non-depreciated part can be recognized as tax deductible costs. However, this does not apply to the liquidation of investments in external fixed assets. An exception to this rule (pursuant to Article 23 (1) (48) of the Personal Income Tax Act) are, for example, losses resulting from the loss or liquidation of cars.