Improvement of fixed assets

The definition of "improvement of fixed assets" has been included in three separate legal acts, which in practice means considerable difficulties in their correct classification and recording. The definitions provided in the Accounting Act, International Accounting Standards and in the Income Tax Act differ from each other, so it is worth organizing them and clarifying the related doubts.

Improvement of fixed assets, as defined in the Accounting Act, consists in reconstruction, extension, modernization or reconstruction and causes that the value in use of this asset, after the improvement is completed, exceeds its initial value in use.

The provisions of the Income Tax Act, similarly to the Accounting Act, treat improvements as reconstruction, extension, reconstruction, adaptation or modernization of a fixed asset.

A different definition is provided by the provisions of the Ministry of the Interior. According to them, improvements include only expenses that mean future benefits for the entity and those that cause the value of the improvements to be reliably measured.

In accordance with tax law, an improvement causes an increase in the initial value of a fixed asset, which means that its cost will be included in tax costs only at the time of depreciation. It should be taken into account here that from January 2003, a rule was introduced according to which a fixed asset is considered to be improved when the sum of expenses incurred on this account in a given tax year exceeds PLN 3,500.

In addition, it is important that the costs of replacement (renovation) nature are included by the taxpayer directly in the costs of business activity at the time they are incurred.

Due to the fact that the improvement of fixed assets increases their initial value, for the correctness of the value of depreciation, the new Amended depreciation should be determined, in accordance with the provisions of IAS, should be applied from the moment of improvement.