Credit costs after the sale of a fixed asset – how to record?

Credit costs after the sale of a fixed asset – how to record?

Making investment purchases financed from loans or credits received is a common business practice. The loan servicing costs, such as the commission for granting it or interest affect the initial value of the fixed asset. However, it happens that the sale of a fixed asset for which a loan was granted takes place earlier than the loan repayment. How to settle other borrowing costs incurred when the company is no longer in possession of this fixed asset? Are the costs of credit after the sale of a fixed asset BUY?

Receipt of a loan for the purchase of a fixed asset

Receipt of a loan for the purchase of a fixed asset

In accordance with art. 28 section 8 of the Accounting Act, the purchase price and production cost of fixed assets under construction, fixed assets and intangible assets includes their total costs incurred by the entity for the period of construction, assembly, adaptation and improvement, up to the balance sheet date or acceptance for use, including:

  • non-deductible tax on goods and services and excise duty,

  • the cost of servicing the liabilities incurred to finance them and the exchange rate differences related to them, less revenues on this account.

Pursuant to the instruction of the provision of art. 16g paragraph 4 of the Corporate Income Tax Act, the cost of production is the value, at acquisition price, of tangible fixed assets used for production: tangible assets and external services used, costs of remuneration for work with derivatives, and other costs that can be included in the value of generated fixed assets. Manufacturing costs do not include: overheads, selling expenses and other operating costs and financial operations costs, in particular interest on loans (credits) and commissions, excluding interest and commissions, credit insurance costs accrued up to the date of commissioning the asset .

If a machine financed from credit funds is accepted for use, its initial value will be increased by both the costs of granting the loan and accrued interest for September 2018. In the case of a loan granted to finance the purchase of several fixed assets, the costs related to its financing are determined in proportion to the value of the fixed asset in the loan amount. See als

Loan costs after disposal of a fixed asset

Loan costs after disposal of a fixed asset

Since the adoption of a fixed asset for use, expenses incurred in connection with servicing the loan taken for that purpose do not increase the initial value of the fixed asset. The taxpayer is obliged to recognize them as part of his business activity.

It should be reminded that pursuant to art. 15 paragraph 1 of the Corporate Income Tax Act, tax deductible costs are expenses that were incurred by the taxpayer, remain in connection with his business activity, and at the same time were incurred to obtain revenue, preserve or secure their source or may have other impact on the amount of revenue achieved and properly documented. At the same time, the legislator indicated a closed catalog of expenses not constituting tax costs (see Article 16 (1) of the Corporate Income Tax Act).

'Repayment of' all costs incurred to generate revenue 'means that any expenditure may be included in the costs if it is shown to be directly related to the business activity. The condition for qualifying an expense as tax deductible costs is its actual incurring. The loan from which the purchase of the car was financed was connected with the conducted activity, it gave the opportunity to drive and obtain revenues from this activity. In the light of the above rule, it should be recognized that the taxpayer is entitled to classify the interest on the loan paid as tax costs until the bank settlements.

Example 3.

Beta took out a loan for the purchase of a forklift. It was granted for a period of 3 years. According to the repayment schedule, the loan will be repaid in full in May 2019. In February, the company decided to sell a forklift.

Interest on the loan remaining to be repaid in March-May 2019 as related to the loan used for the purposes of the taxpayer's business will be able to be recognized in the tax account as costs also after the date of sale of the fixed asset, the purchase of which was financed by this loan. Therefore, the tax qualification of the loan in question and interest on it does not differ from the qualifications usually drawn for current operations of loans or bank loans.

Credit costs after the sale of a fixed asset received by a spouse

Credit costs after the sale of a fixed asset received by a spouse

In a situation in which a fixed asset used in business operations was financed from a loan granted to a spouse, interest on this loan may constitute tax deductible costs, because they show a causal relationship with revenues as a form of financing the company's capital.

The sale of an item of property, plant and equipment used for business purposes remains neutral for the option of including interest on tax on that asset in tax costs, irrespective of which of the spouses was granted the loan and in what form (including the private loan of the other spouse). It is important that there is a statutory community of property between the spouses.

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