Introduction
Nowadays, we can
encounter the term tax planning – which can be understood as effort of the
businessman to optimize his costs – more and more often. The choice of tax depreciations
is also a very important part. Every firm, in order to function properly, needs
such parts for its functioning, which are interconnected and together, they
function in a way that the firm is able to exist. One of the most fundamental
conditions for the functioning of a firm is to get acquainted with the
company’s property. A firm is most concerned about its long term and short term
property.
Depreciation
politics is not only an important tool of financial management for every
business subject, but also an important part of financial politics of a state,
which defines the possibilities and ways of depreciation using tax regulations,
hence influencing the behavior of the business sphere. Depreciations are an
important item in the company’s expenses, particularly for financial flow
planning. Therefore, it significantly influences the tax base, but it is also a
tool for redistribution of financial resources between the state and the
companies. They are one of the major financial tools of state interference into
the economy. By setting the maximal level of the depreciations, it can
stimulate or limit the amount of investing of the business subjects. An example
of this can be seen in shortening the depreciation time in some depreciation
classes, thanks to which depreciation of long term property takes shorter time.
This shortening results in the increase of depreciation of the yearly amounts
of money. Therefore it decreases the
base of the tax. By doing this, the government tries to motivate the firms to
invest. In terms of the public finance reform mature since 1/1/2005, the
depreciation time is decreased in the first three depreciation groups.
During the year 2007, some changes
in the legal regulations have occurred. Law n. 563/1991 Sb., about accounting, had
been novelized in the year 2008. However, these were only slight changes that
influence accounting only a little. Law n. 586/1992 Sb., about income taxes, had
been novelized several times during 2008. The novel is interconnected with the
ratification of the government’s law proposition published in the collection of
laws n. 2/2009 Sb., in which the law n. 586/1992 Sb., about the income tax, was
novelized due on 1/1/2009, while these changes affect tax depreciations as
well. [19, p. 7]
Property movement is
recorded in the accounting. These movements are displayed in the profit and
loss report or the balance. In this bachelor thesis, I will describe how to
depreciate, sort and account the long-term tangible property in the right way
so that the real state of the company’s management is displayed.
This bachelor thesis
aims to render a transparent summary of accounting and tax depreciation of
long-term tangible property (LTTP), including illustrative examples, primarily
for business companies, businessmen, accountants, company managers and other
wider public in order to be able to understand the given problem and to be able
to use it in practice.
The contents and aim of
the paper is to define the basic characteristics of long-term property, to
distinguish between the individual types, state the introduction price of the
acquired property, inscroll the individual ways of property acquiring, overview
of the depreciation classes and the individual depreciation rates, to state the
level of steady or accelerated depreciations, practically inscroll exclusion of
long-term property including practical examples.
In this bachelor thesis, I would
like to concentrate mainly on long-term tangible property, because I think it
is more common in the business sphere.
I will divide the bachelor
thesis into two main chapters, where in the first chapter I will concentrate on
the long-term tangible property from the perspective of accounting and taxes
and its pricing. In the second chapter, I want to concentrate on the
explanation of accounting and tax depreciations and the differences between
those methods. In addition to that, I would like to describe the actual legal
form of tax depreciations valid since 1/1/2009, which I will also try to
compare with the legislature in the past years. The thesis will also be
supplemented with solved examples, which extend the theoretical knowledge,
which can be gained by studying literature.
1 Long-term
Tangible Property in Accounting and Taxes
Companies use two types
of property for their functioning – long-term and short-term. In case of
short-term property, the consumption is one-shot, whereas with the long-term
property, it is necessary to realize that the consumption is spread out into
several accounting and taxation periods. That implies that it is not possible
to include the whole acquisition (entering) price into the accounting and tax
expenses in a single accounting and taxation period, but it is gradually
applied in more time periods. This is realized via long-term property
depreciation, which can be divided into two groups – accounting and tax depreciations.
The basic characteristic
of long-term property is its long-term usage in the firm’s activity for a year
or more and its gradual punishment, which is expressed by the depreciations.
1.1 Defining long-term tangible property in
accounting
First, it is important
to define the term long-term tangible property correctly, because the
depreciations affect only the long term property.
According to § 19 par. 7
of the law n. 563/1991 Sb., about accounting, it holds that the property of
accounting units is divided into long-term and short-term property. Long-term
property is defined as such property that is used, possibly the arranged the
term of expiration in case of the occurrence of an accounting case is longer
than one year. That means that property that does not fulfill this condition is
short-term. If, with respect to the character of the property, these division
perspectives cannot be applied, the decision-making intention is manifested on
the acquisition of the property.
As for accounting,
long-term property is defined more precisely in sequence to the general
modification listed in the law about accounting by a Ministry of Finance
regulation n. 500/2002 Sb., n a valid version, specifically in § 6-8 and ČSÚ n.
013.
According to these ordains,
long-term property is, according to accounting, divided into 3 groups:
Ø Long-term intangible property (§ 6)
Ø Long-term tangible property (§ 7)
Ø Long-term financial property (§ 8)
Long-term financial
property cannot be depreciated, from both the tax[1]
perspective and the accounting perspective. Its accounting depreciation is
banned by § 56 par. 9 regulation n. 500/2002 Sb. That implies that
depreciations concern only long-term tangible and intangible property.
As I have already
mentioned in the introduction, I will occupy myself with long-term tangible property in this paper.
Items identified as
long-term tangible property according to the regulation n. 500/2002 Sb., § 7,
can be defined as:
Ø land no
matter how high the price is, if they are not goods[2]
Ø buildings no
matter how high the price is and their usability time, if they are not goods,
which means buildings, mines, waterworks, mine, sandpit and clay-pit openings,
technical recultivations, flats, offices and also their technical valorization
Ø single tangible items with usability time longer than one year and up to the value set by an
accounting unit (that means items made of precious metals, no matter the price,
sets of tangible items) and also their technical valorization
Ø agricultural units of permanent vegetation (fruit trees or bushes, vineyards, hop-fields)
Ø adult livestock and their groups (e.g. herds, flocks) with usability time longer
than one year and from price stated by accounting unit, while fulfilling the duties
stated by the accounting law, particularly respecting the significance
principle and accurate property display
Ø unfinished long-term tangible property contains long-term property that is being
acquisitioned for the time when it is being acquisitioned until it is in a state when it is qualified
for use
Ø granted advances for long-term tangible property acquisitioning, which means short-term
and long-term advances granted for the acquisition of long-term tangible
property
Ø Difference in valuation to the acquired property contains positive or negative difference
between the valuation of the company of its part gained particularly by a
purchase, investment or property valuation and obligations in terms of company
transformations. An exception would be a change of the legal form and a summary
of the valuations of its parts in the accounting of the selling, investing or
disappearing accounting unit by a reduction by the adopted obligations [8, p.
124]
Long-term tangible
property then are purchased items that are in the state fit for usage, which
means finishing the processes and fulfilling of technical functions and
obligations for usage (qualification to operation). The procedure in case of
technical valorization is similar.
Accounting delimits
long-term property in dependence on its lifespan; financial limits are then
stated by an internal regulation. According to the property delimitation
according to the tax and accounting laws, it is clear that the income tax law
delimits a category of long-term property connected to tax depreciations. Ts
delimitation differs from the accounting category of long-term property, which contains
a lot more items, which are either not depreciated or with which, accounting
depreciations are used for taxation purposes.
1.2 Defining Long-term Tangible Property in
Terms of the Income Tax
From the tax
perspective, long-term property is not completely identical with the accounting
perspective. For the income tax, some categories are defined directly by the
income tax law (ITL from now on), elsewhere, the tax regulations are silent,
i.e. they do not need a special modification. Therefore, they do respect the
already accounted expenses of the accounting unit. ITL does not define the term
long-term property directly; it mentions only tangible and intangible property.
An overview can be gained from the following diagram. [8, p. 122]
Long-term
property
Other tangible
LTP Other
intangible LTP Petty LTP
Diagram 1.1: Structure of
long-term property in terms of income tax
Source: [8, s. 123]
Tangible property (§ 26):
Ø single tangible items or sets of
tangible items with individual technical – economic purpose, whose market entry
price (according to § 29 ITL) is higher than 40 000 CZK and their
operationally technical functions are longer than one year
Ø residential or non-residential
premises, defined by a special regulation
Ø buildings with an exception of
1. operational mine works
2. small buildings on grounds meant for
fulfilling the functions of a forest, serving for ensuring the function of tree
nursery or for the operation of game keeping, if their built-up area is not
bigger than 30 m2 and the height of 5 m,
3. fencing used for securing forest
manufacturing and game keeping, which is a small building
Ø agricultural units of permanent
vegetation with fertility longer than three years delimited in § 26 par. 9 ITL
Ø adult livestock and their groups,
whose market entry price according to § 29 ITL is higher than 40 000 CZK
Ø other property delimited in § 26 par.
3 ITL, by which we mean technical recultivation and mainly the so-called technical
valorization
Tangible property for the means of ITL is not
supplies. Manufacturing devices as well as devices and items serving for the
practice of services (performances) and special-purpose devices and items,
which do not make one unit with the building, if they are solidly connected to
the building, are also considered single tangible items. [19, p. 15]
Items become tangible
property when they are put into state in which they are fit for normal usage,
which means finishing the process and fulfilling the technical functions.
In practice,
uncertainties about how to assess property that is solidly connected to a
building from the tax perspective occur. It is mostly the valorization whether
it is a part of the building or an independent tangible item. Some help can be
found in the regulation D-300 of the Ministry of Finance. [19, p. 16]
1.3 Acquisition of long-term tangible property and its
valuation
It is very important for
the calculation of accounting and tax depreciations to valuate the property
correctly and with a price from which the depreciation will take place and to
determine when the tangible property from the accounting and tax perspective
really becomes long-term tangible property correctly. The period of accounting and tax depreciations
begins based on this determination.
1.3.1 Acquisition of long-term tangible property
and its valuation in taxes
Market
entry price is a delimitation of the values of the property from which the
property is tax depreciated. Long-term property valuation from the tax
perspective is regulated by § 29 ITL. ITL then partially refers to the
accounting law, particularly § 25 par. 4. The market entry price depends on the
way of the acquisition of the tangible property. The relation between the way
of property acquisition and the used market entry price is shown in the
following diagram.
úplatpplAplatně
Diagram 1.2: Market entry
price
Source: [8, s. 126]
Ø Acquisition price – When the property is acquired by payment. If buying rented property,
with which the renter depreciated the technical valorization, the remnant price
of this technical valorization is also a part of the market enter price.
Taxpayer who depreciated the technical valorization related to the property
bought according to a contract of financial renting with subsequent purchase of
the rented item, the market enter price will be increased by the purchase price
o the property that has already been depreciated in that taxation period, when
the property is bought and the already begun depreciation continues.[3]
Ø Own costs for
the property acquisition are considered the market entry price in case of the
property that was acquired in one’s own way. That holds eve for taxpayers who
do not manage accounting.[4]
Ø Value of an unpaid claim secured by a transfer of law in case of tangible property, which stays
in the creditor’s possession.[5]
Ø Reproduction acquisition price stands for the property price secured under a
special legal regulation depending on the purpose of valuation.[6] Physical
entities cannot use the reproduction acquisition price in some cases.[7]
Ø if acquiring property via
inheritance or donation, the price
stated for the purposes of the donation and inheritance taxes is the market
entry price with the exception of the cases when the legal successor or
succession company or a cooperative continues in depreciating started by the
original owner. [8]
Ø technical valorization value of the property whose accounting depreciations
are the expenses (costs) according to § 24 par. 2v), raised by the valuation of
this depreciated property.
Market entry price is
decreased by the grants granted from the state budget, the budgets of towns and
regions, state funds, grants given based on a special regulations, EU grants,
subsides and benefits from public budgets and other financial flows of a
foreign state.
Sometimes, changes are
conducted on a property already purchased. These changes can then significantly
raise both the expenses on this property and the usage properties of the
property. This is called technical
valorization. If the technical valorization takes place in the year of the
inclusion of the property into the process, this technical assessment is a part
of the market entry price. However, if the technical valorization takes place
in the following years, the market entry price is subsequently increased by the
value of the technical valorization. If the expenses for the technical
valorization do not exceed 40 000CZK in one taxation period in the case of
one property, the taxpayer does not have to consider these expenses as
technical valorization and increase the market entry price by them.
Market entry price can
also change from a different reason than it technical valorization, e.g. the
contents of the depreciated collection changes, therefore the market entry
price, from which depreciation takes place is changed (the original market
entry price can be lowered or raised). [8, p. 127]
1.3.2 Acquisition of long-term property and its
valuation in accounting
Long-term property
valuation is regulated by the following directives: [8, p. 128]
Ø The law about accounting (§ 25)
Ø Regulation n. 500/2002 (§ 47)
Ø ČÚS č. 013
Ø Law n. 563/1991 Sb., about accounting regulates general rules for valuation of the
individual property items. As well as the income tax law, it delimits the
following prices:
Ø Acquisition price is a price, for
which the property was acquired and the expenses connected with its acquisition
Ø Reproduction price is the price for
which the property would be acquired in the time when it is accounted
Ø Own expenses in case of property
created by own activity are direct expenses spent on the production and
indirect expenses which relate to the production or other activity, defined
according to the accounting methods
Furthermore, the law counts
on the correction of the valuation (§ 26) in case of temporary value decrease
of long-term property in the form of correction items. [8, p. 128]
b) Regulation n. 500/2002 Sb. delimits the costs in accordance to the
accounting methods related to acquisition of long-term intangible and tangible property,
which includes:
Ø Expenses on the preparation and
securing of the acquired property, particularly change for advisory services,
mediation, legal fines, payments for the provided guarantees and certificate
verification, expertise, patented research and pre-project preparatory works
Ø interests, namely from a credit, if
the accounting unit decides so
Ø levies for temporary or permanent
deprivation of agricultural land from agricultural production and the fees for
temporary or permanent deprivation of forest land
Ø research, geological, geodetic and
project works including alternative solutions and budgets, setting up the
construction site, removal of the vegetation and the relevant terrain
adjustments, toll, transport fees and works of art that are a part of the
building
Ø licenses, patents and other rights
used during the acquisition of the property, not for the operation to come
Ø Discarding of the existing buildings
or their parts because of the new infrastructure. Balance prices of the
discarded buildings or their parts. The discarding costs are a part of the
expenses for the new building.
Ø Compensations for limiting owner
rights, compensations for material detriment to the owner or renter of the
realty of for limitations during normal usage, as well as compensations for
prematurely cleared vegetation related to the construction
Ø Payment of the share on the justified
costs of the operator of the transport system of the operators of the
distribution network (electricity, gas, heat)
Ø Compensation of expenses to the
owner of the distribution device and its transfer
Ø Trials before the property is
brought into usage (if some useable products or processes are created during
the trials, the profits from these products or processes are a part of the
operational profits and their costs are parts of the operation costs)
Ø Securing, conservation and
maintenance works during property stopping and non-conservational works in case
of its further continuing.
The following are not parts of the valuation of
long-term intangible and tangible property:
Ø repairs and maintenance
Ø renter’s expenses on bringing the
rented property into the original state
Ø exchange rate differences
Ø contract fines and interests on late
payment
Ø taxes connected to long-term property
acquisition, which are not tax approvable
The valuation will
increase by the technical valorization, to who’s accounting and depreciation is
the accounting unit authorized, and lower by the donation given for its
acquisition. Long-term tangible property acquired by a barter contract will be
valuated by the acquisition price, if the prices are not mentioned in the
contract. Valuation of acquired land includes the tree cover or tree or bush
planting, if they are not an agricultural unit of permanent vegetation. [8, p.
129]
c) The Czech accounting standard n. 013 states other details for
long-term property valuation:
Ø from now on, parts of valuation are not:
-
rent
for land used for building, on which building is in progress
-
expenses
on the preparation of employees for the operations and buildings that are being
built
-
expenses
on equipping the acquired long-term property with supplies
-
expenses
on biological recultivation
-
expenses
connected with the preparation and securing of the building emerging after the
acquired property has started to be used
Ø Valuation of a collection of
tangible items will increase by the acquiring price, reproductive acquiring
price or own expenses on items added to the collection additionally. If a part
of the tangible item collection is removed, the valuation is reduced by the
removed parts, while depreciation rate is the same as the depreciation rate of
the collection. [8, p. 130]
According to § 24 par. 2
of the law about accounting, it holds that accounting units valuate property
towards two basic moments:
a) towards the moment of fulfilling an
accounting case according to § 25 of the law about accounting
b) Towards the end of the balance day, or
towards some other day towards which an accounting closing – as described in §
27 of the law about accounting. [19, p. 20]
In case of property
acquired in the supplier way, we
account it in the accounting group 04-acquisition
of long-term intangible and tangible property, based on the supplier
invoice. The property starts to be used and is accounted on the property
account 01 – long-term intangible property, 02 – long-term tangible
property-depreciated and 03 – long-term tangible properties, non-depreciated in
the market entry price based on the record of approval (record of the start of
usage of long-term property). The purchase long-term property form the EU
countries takes place similarly to when the supplier is domestic. The value
added tax has to be counted by the purchaser himself, and accounted as a tax on
the entry (tax claim) and a tax obligation on the output. If the long-term
property is purchased from other countries, i.e. from countries that are not EU
members, a part of the acquisition costs is a toll by a customs office. The
value added tax is counted from the acquisition price of the long-term property
raised by the toll [9, p. 70]
Property acquisition by
own activity is called activation (the actives are increased). It is accounted
on the 04 accounts, with a correlative entry onto the account 623 – activation of LTIP (long-term intangible property) or
624 – activation of LTTP (long-term
tangible property). If secondary acquisition prices are a part of the
acquisition costs, e.g. transport or montage acquired by own activity, we
account it for the benefit of the account 622
– activation of intercompany services. [9, p. 71]
Acquired tangible and
intangible property does not become long-term property from the accounting
perspective until the given property is completed and it is simultaneously
secured that it will be able to fulfill all the functions, for which it was meant
and all the conditions given by the legal regulations for the launching the
property into usage are fulfilled. Until this moment, given property is held as
property being acquisitioned (incomplete) on the respective balance accounts.
[19, p. 24]
Example
Firm ABC Ltd. Acquires
new machining machines:
|
1. |
Invoice accepted form the supplier
for the machine DPH 19% |
40 000,- 7 600,- |
|
2. |
Invoice of an external supplier for
the transport – does not pay VAT |
2 500, |
|
3. |
Machine montage using own workers |
1 200,- |
|
4. |
Report of launching the machine
into usage |
43 700,- |
|
5. |
Invoice accepted for the machine
from a foreign supplier |
180 000,- |
|
6. |
Toll counted by the customs office -
DPH 19% |
20 000,- 38 000,- |
|
7. |
Statement of current account – cost
of a machine from inland -
Transport cost -
Cost of the invoice for a machine
from abroad -
Cost of toll and VAT 19% |
47 600,- 2 500,- 180 000,- 58 000,- |
|
8. |
Report of launching a machine from
abroad into usage |
200 000,- |
|
9. |
Invoice accepted for the software from
an EU country |
100 000,- |
|
10. |
Self counting of VAT 19% |
19 000,- |
Solution:
321 Suppliers 042
Acquisition of LTTP 022 Individual tangible items
and collections
7. 47 600,- 1.
47 600,- 1.
40 000,- 4.
43 700,- 4. 43 700,-
7. 2 500,- 2.
2 500,-
2. 2 500,- 8. 200 000,- 8. 200 000,-
7. 180 000,- 5.
180 000,-
3. 1 200,-
9.
100 000,-
5. 180 000,-
6.
20 000,-
622 Activation of IC services 343
VAT 221
current account
3. 1 200,- 1.
7 600,- 7.
47 600,- 6. 38 000,- 7. 2 500,-
7. 180 000,-
7.
58 000,-
379
other obligations
6.
20 000,-
7.
58 000,- 6. 38 000,-
343.378 VAT 041 acquisition
of LTIP 343.379
VAT
10. 19 000,- 9. 100 000,- 10. 19 000,-
2 Depreciations
of Long-term Tangible Property
Long-term property is
such property that is not consumed at once, but is worn out gradually. This
wear can be:
Ø Physical, caused by the using of the
property. It manifests by lower efficiency, dependability, precision etc.
Ø Moral, caused by becoming
technically obsolete, non-modern
In accounting, wear is
expressed by depreciations. For the
accounting unit, depreciation is an expense, into which the value of long-term
property is gradually transferred. For the calculation of depreciations, the
accounting unit creates a depreciation
plan, which contains a list of all the depreciated long-term property with
a determination of the wear percentage. It
is stated as annual depreciation rate and
the depreciation is calculated from the market entry price of the long-term
property (acquisition price, own expenses). The accounting unit states the way
of calculation and execution of depreciations. The property is depreciated from
the market entry price to the maximum of its 100%.
2.1 Tangible Property Excluded from
Depreciations
In case of some
property, tax depreciations or balance price cannot be applied as a tax expense
(cost). Not even rent can be, in the case of financial renting with a subsequent
purchase, considered a tax expense.
Income tax law in § 27 excludes the following tangible
property from depreciation:
a) voluntarily conveyed property
according to a contract of financial renting resulting in the purchase of the
rented item, if the expenses (costs) related to its acquisition do not exceed
40 000 CZK
b) agricultural units of permanent
vegetation with fertility time longer than 3 years, which has not reached the fruit-rearing
age yet
c) hydro-melioration until 2 years of its finalization
d) pieces of art that are not parts o a
building, items of museum or gallery value, possibly their collections in
museums and historic objects, permanent exhibition collections and library
funds of libraries of a uniform system, possibly other funds
e) chattel cultural monument and
collections of chattel cultural monuments
f) tangible property obligatorily took
over for free according to special regulations
g) inventory surpluses of tangible
property established according to a special legal regulation,[9] if they
were not accounted for the benefit of the profits during the establishment
h) tangible chattel acquired by the
creditor as a result of the securing of a commitment by a law transfer,[10] as well
as during this commitment under the assumption that the original owner will
depreciate during this time, if he would have make a loan contract with the
creditor.[11]
ch) tangible property, whose free
acquisition was subject to donation tax and was freed from the donation tax at
the time of donation[12]
i)
rented
tangible property including property that is a subject of a financial renting
contract with subsequent purchase of the rented tangible property or a similar
contract made abroad, if the depreciations or similar items are applied by a
different person than the owner
Independently
depreciated technical valorization carried out on tangible property excluded
from depreciation according to § 30 par. 1 ITL (after the novelization by the
law n. 492/2000 Sb.) sorts into the depreciation group into which the tangible
property, on which technical valorization has been carried out (to which the
technical valorization relates), belongs.
In terms of accounting
depreciation of long-term property, it is essential to correctly determine
which property can be depreciated in terms of accounting and which cannot. Some
types of property are, for economic or other reasons, excluded from
depreciation. The basic reason is that they are not subject to wear (or the
level of wear is very uncertain). The calculation of these conditions is listed
in § 28 par. 1 of the accounting law and in § 56 par. 9 of the regulation n.
500/2002 Sb. According to the cited ordains, the following is not depreciated:
a) land
b) works of art, which are not parts of
a building, collection, chattel cultural monument, items of cultural value and
similar chattel items stated by special regulations
c) unfinished long-term tangible and
intangible property and technical valorization, if not in a useable state
d) financial property and supplies
e) rented or similarly used long-term
property, if a law or regulation does not say differently
f) claims
The property components listed above cannot be
depreciated. [19, p. 37]
2.2 Tax Depreciations of Tangible Property
The income tax law
allows the following forms of depreciations (§ 30-32)
Tax depreciation
Of tangible property Of property that is not
tangible accounting tax standard special According to time (performance)
Diagram 2.1: long-term
tangible property depreciations in the base of the income tax
Source:
[8, p. 130]
Tax balance price of
tangible property is the market entry price lowered by the whole tax
depreciations calculated for the previous taxation period. Market entry price
is always lowered by the calculated, not applied depreciation. If the taxpayer
can apply the tax depreciation in the tax base only partially, it is for
example because the depreciated property is partially used for acquiring income
that are not subject to taxation or for personal use, the balance price is
decreased by a higher sum than will be the depreciation applied in the tax
base.
Accounting
depreciations, which are parts of the result of the management, are used for
the tax purposes in terms of property that is depreciated and simultaneously,
it is not property from the perspective of the income tax. Petty long-term
property (PLTP) is depreciated in accounting for example linearly – for a
period of time stated by the accounting unit by an internal regulation. If the
result of the management is not distorted by this, it is not necessary to
depreciate the PLTP and it is possible to include it in the expenses.
One of the basic
principles of tax depreciations is that it is possible only up to the value of
the market entry price (up to the value or raised market entry price in case of
depreciation from raised market entry price). The tax depreciations are more
adjusted to the state’s idea of the decomposition of the taxpayer’s tax base
than to the accounting principle of truthful representation. Tax depreciation
is a right not a duty, therefore the taxpayer does not have to depreciate at
all or can reschedule the beginning of the depreciation or can even interrupt
the depreciation. The taxpayer decides not to apply the depreciations when full
application would lead into tax loss or would not allow him apply allowances
from the tax base and tax discounts in full extent. The depreciation then
continues in the following years as if the depreciation was never interrupted.[13] [8, p.
131]
The procedure delimited
in § 30-32 ITL is valid for tangible property depreciation. According to § 30 par.
1 ITL, the taxpayer sorts the property into the relevant depreciation group in
the first year of depreciation according to the appendix n. 1 ITL. Since the 1st
of January 2008, the ITL contains 6 depreciation groups, to which the minimal
depreciation time is assigned according to § 30 par. 1 ITL.
|
Depreciation group |
Depreciation time |
|
1 |
3 years |
|
2 |
5 years |
|
3 |
10 years |
|
4 |
20 years |
|
5 |
30 years |
|
6 |
50 years |
Table: Minimal depreciation time
Source: [23, p. 31]
The stated depreciation
time mentioned in the table does not apply to tangible property, in case of
which, an increase of the depreciation time took place during the depreciation.[14]
If some of the tangible
property cannot be sorted into one of the groups listed directly in the
appendix n. 1 of ITL, we classify the property according to the Classification
of built structures CZ-CC published by Český statistický úřad (The Czech bureau
of statistics) into the depreciation group 5 and the remaining property
according to the Standard production classification into the depreciation group
2. As for the classification of tangible property into the individual
depreciation groups, it generally holds that the depreciation groups 1-3
contain tangible chattel and the groups 4-6 contain the intangible
chattel. [19, p. 60]
Two basic methods can be
used for the actual calculation of tangible property taxation depreciations:
a) steady tax depreciations (according
to§ 31 ITL)
b) accelerated tax depreciations (according
to § 32 ITL)
The depreciation method
is set at the beginning of the depreciation and cannot be changed during the
depreciation.
2.2.1 Exceptional Depreciations
Exceptional depreciations[15] were
introduced as a part of the so-called anti-crisis pack and allow the property
to be depreciated in a much shorter time than when using the steady or
accelerated depreciations. Exceptional depreciations can be applied only to new tangible property acquired since the 1st
of January 2009 until the 30th of June 2010, sorted in the first two
depreciation groups. This measure was introduced with the aim to stimulate
the taxpayers to buy new tangible property and as a result, to increase the producer
sales, preserve the production and the level of employment. It is completely up
to the taxpayer, if he would use this possibility or if he would stick to the
standard, steady or accelerated depreciations or if he would use the
exceptional depreciations only in the case of come sorted property. Even with
exceptional depreciations, it holds that if the property is used for achieving
taxable income only partially, then it is necessary to reduce the depreciations
as well.
In case of property
belonging to the 1st
depreciation group, the market entry price can be depreciated steadily in
12 calendar months, beginning with the month after the day when the conditions
for depreciation were fulfilled (the property was sorted).
Example
A taxpayer acquired a
measuring machine in January 2009 sorted into SKP 33. 2 and it was started to
be used on the 22nd of January 2009. Market entry price of the
machine is 180 000,-CZK. If the taxpayer decided to utilize the
exceptional depreciations, then he can include a sum of 1/12 of the market
entry price into the taxation expenses every month, in this case starting
February.
Monthly depreciation is
180000/12 = 15 000,-CZK
Taxation depreciation
for 2009 15 000
x 11 = 165 000,-CZK
Taxation depreciation
for 2010 15 000
x 1 =
15 000,-CZK
In case of property
belonging to the 2nd
depreciation group, it is possible to depreciate the market entry price for
24 months in such a way that in the first 12 months, 60% of the market entry
price is equally depreciated, and the remaining 40% of the market entry price
are depreciated in the remaining 12 months.
Example
Taxpayer acquired an
automobile in May 2009. He instantly included it in property with market entry 360 000,-
CZK. In case of the usage of exceptional depreciations, he can utilize the
depreciations starting June in this way:
60 % of the market entry
price = 360 000 x 0,6 = 216 000 CZK, from which 1/12 =
216 000/12 = 18 000,-CZK
40 % of the market entry
price = 360 000 x 0,4 = 144 000 CZK, from which 1/12 =
144 000/12 = 12 000,-CZK
Taxation depreciation
for 2009 18 000
x 7 = 126 000 CZK
Taxation depreciation
for 2010 (18 000
x 5) + (12 000 x 7) = 174 000 CZK
Taxation depreciation
for 2011 12 000
x 5 = 60 000 CZK
2.3 Steady taxation depreciations of
tangible property
Steady taxation
depreciations are calculated from the market entry price using annual
depreciation rates determined in tables § 31 ITL. The maximum depreciation
rates for the calculation of steady taxation depreciation of tangible property
are written down in the following table. (valid since 1. 1. 2005): [19, p. 63]
a) Annual depreciation
rate for tangible property
|
Depreciation
group |
In
the first year of depreciation |
In
the following years of depreciation |
For
a raised market entry price |
|
1 |
20 |
40 |
33,3 |
|
2 |
11 |
22,25 |
20 |
|
3 |
5,5 |
10,5 |
10 |
|
4 |
2,15 |
5,15 |
5,0 |
|
5 |
1,4 |
3,4 |
3,4 |
|
6 |
1,02 |
2,02 |
2,0 |
Table: Annual depreciation
rate for tangible property
Source: [19, p. 63]
Formula for the calculation of steady depreciations from the market
entry price:
where: MEP
= market entry price
ADR = Annual depreciation rate in the respective year
of depreciation
Depreciations are
rounded to whole crowns
Example
A firm has acquired a
machine for 500 000 CZK in 2007. According to ITL, it was sorted into the
3rd depreciation group (depreciation time 10 years). Steady
depreciation was used.
Solution:
N the 1st
year
O
= 
= 27 500,-
In the following years:
O
= 
= 52 500,-
Depreciation plan:
Rok=year,
odpis=depreciation, oprávky=accumulated depreciation, zůstaková cena=balance
price, celkem=total
b) Annual depreciation
rate after a rise of the depreciation rate by 20 % after the first year of
depreciation
|
Depreciation
group |
In
the first year of depreciation |
In
the following years of depreciation |
For
a raised market entry price |
|
1 |
40 |
30 |
33,3 |
|
2 |
31 |
17,25 |
20 |
|
3 |
24,4 |
8,4 |
10 |
Table: Annual depreciation
rate after a rise of the depreciation rate by 20 % after the first year of
depreciation
Source: [19, p. 65]
The depreciation rate in
table b) can be used by a taxpayer with mainly agricultural and forest
manufacture, who is the first owner of an agricultural and forestry machine and
whose income from this activity made up more than 50% of his total income[16] in the
preceding taxation period. [19, p. 65]
c) Annual depreciation
rate after a rise of the depreciation rate by 15 % after the first year of
depreciation
|
Depreciation
group |
In
the first year of depreciation |
In
the following years of depreciation |
For
a raised market entry price |
|
1 |
35 |
32,5 |
33 |
|
2 |
26 |
18,5 |
20 |
|
3 |
19 |
9 |
10 |
Table: Annual depreciation
rate after a rise of the depreciation rate by 15 % after the first year of
depreciation
Source: [19, p. 65]
The annual depreciation
rate in the table c) can be used by the taxpayer, who is the first owner of water
cleaning and finishing facility or an operation or preparation plant for the
valuation of secondary raw minerals.[17] [19, p.
65]
d) Annual depreciation
rate after a rise of the depreciation rate by 10 % after the first year of
depreciation
|
Depreciation
group |
In
the first year of depreciation |
In
the following years of depreciation |
For
a raised market entry price |
|
1 |
30 |
35 |
33,3 |
|
2 |
21 |
19,75 |
20 |
|
3 |
15,4 |
9,4 |
10 |
Table: Annual depreciation
rate after a rise of the depreciation rate by 10 % after the first year of
depreciation
Source: [19, p. 65]
The annual depreciation
rate in the table d) can be used by the taxpayer, who is the first owner of tangible
property sorted in the depreciation groups 1 thru 3 [18] with
the exception of tangible property listed in paragraphs 2, 3, 5. [19] [19, p.
65]
Example
Calculate the steady
depreciations of a new measuring device, whose acquisition price is 800 000,-
CZK.
Solution
According to ITL,
measuring devices are sorted into the first depreciation group (depreciation
time 3 years). The depreciation rates are higher by 10% (deprecation rates are
30% for the first year and 35% for the following years of depreciation).
|
1st yr |
30% from 800 000,- CZK |
240 000,- CZK |
|
2nd yr |
35% from 800 000,- CZK |
280 000,-CZK |
|
3rd yr |
35% from 800 000,- CZK |
280 000,- CZK |
|
|
total |
800 000,- CZK |
2.3.1 Utilization of lower annual depreciation
rates
For the steady tax
depreciation, businessmen can also use lower annual depreciation rates than
those stated in § 31 ITL (maximal). In practice, this happens in situations
when the base of the income tax is, before the maximum possible annual
depreciation rates are used, positive, but if they were used, the businessman
would get into a tax loss. In a moment like this, it is unnecessary (and also
unprofitable) to use these rates and it is much better to use lower annual
depreciation rates. Exceptions, when these rates cannot be used are stated § 31
par. 7 ITL, that is physical persons applying lump sum expenses and physical
persons that use the depreciated property also for different reasons than to
secure taxable income.
2.3.2 Interruption of tax depreciation
Tax depreciations (both
steady and accelerated) can be interrupted for any time. It does not matter
whether the property is depreciated steadily or using accelerated depreciation.
However, as soon as the tax depreciation is interrupted, it is necessary to
proceed as if the interruption never happened, should the depreciation continue
again (that means that the way of depreciation cannot be changed etc.). A
condition for physical persons, however, is that the lump sum expenses cannot
be applied during the interruption, because this sum in fact already contains
the tax depreciations. The depreciation time cannot even be lengthened by the
time in which the lump sum expenses were applied.
2.3.3 Half Tax Depreciation
The
depreciation in the value of the half of the annual depreciation is used in
case of the property that has been registered at the beginning of the taxation
period (to the 1st of January) and the following has happened during
that period:
Ø discarding
Ø transfer onto a different physical or juridical person
Ø Termination of the business activity or the renting, cancelling,
liquidations, etc.
Ø Termination of the relationship during depreciation of technical
valorization by the renter or termination of the renting
In
addition to that, in case of tangible property acquired during the taxation
period and registered towards the end of this period (towards 12/31), in case
of which, the taxpayer continues the depreciation initiated by the original
owner. Also, in case of tangible property registered by the taxpayer for the
whole taxation period in case of liquidation initiation or a tender and in case
of taxpayers whose taxation period is shorter than 12 months.
It is
therefore important to check also the increases and decreases of property
during the period, when calculating the annual tax depreciations. If, for
example, the businessman sells the property on the 2nd of January,
he will stake a claim for a half of the tax depreciation, since the property
was registered at the beginning of the taxation period, but not at its end. He
will follow the same procedure with property sold on the 30th of
December. Logically, property bought on the 2nd of January, but sold
on the 30th of December cannot be tax depreciated, not even in the
half value. This property was registered neither towards the beginning, nor the
end of the taxation period.
2.3.4 Technical Valorization during Steady
Depreciation
The procedure of
calculation of steady tax depreciations from a raised market entry price can be
found in § 31 par. 8 ITL, which says: “during steady depreciation from a raised
market entry price of tangible property is stated by depreciations of this
property for the given taxation period in the value of one hundredth of the
product its raised market entry price and the corresponding annual depreciation
rate valid for the raised market entry price.” [19, p. 76]
Formula for the calculation of steady tax depreciations from the raised
market entry price:
Steady
depreciations from raised market entry price = 
where: ZVC
= raised marked entry price,
ROSPZVS = annual depreciation rate for a raised market
entry price.
Example
The company SDA, Inc.
acquired a computer set in the value of 100 000,- CZK (1st owner)
in 2007 and started to use it. Already during 2007, it has carried out a
technical valorization in the value of 50 000,- CZK on this set. How will
the steady tax depreciations calculated for this set?
Solution
If the technical
valorization is carried out during the first year of depreciation, then this TV
is a part of the market entry price. In this case, depreciation will take place
directly from the market entry price 150 000,-CZK.
|
y.
2007 |
150 000
. 30/100 |
45 000,-
CZK |
|
y.
2008 |
150 000
. 35/100 |
52 500,-
CZK |
|
y.
2009 |
150 000
. 35/100 |
52 500,-
CZK |
Example
The CSA company has carried
out TV of a computer set in 2008, which is now completely depreciated. The
value of the TV is 45 000,-CZK. The original market entry price of the
computer set was 80 000,- CZK. How will this TV be depreciated, when the
set was depreciated using steady depreciations?
Solution
In case that TV takes
place on a completely depreciated property that has been depreciated using
steady depreciations, it holds that in the year of bringing the TV into usage,
the market entry price is increased to the increased market entry price and the
computer set will be depreciated from the increased market entry price, which,
for the 1st depreciation group, means 33.3
Steady depreciations in
the year 2008 = 
= 41 625 CZK
Balance price of the TV 3 375,-CZK
will be depreciated in the year 2009.
2.4 Accelerated depreciation of long-term
tangible property
The second standard
method how to tax depreciate tangible property are accelerated depreciations,
which are regulated by § 32 ITL. If this depreciation is used, the
depreciations are higher in the fist years then in case of steady
depreciations. This fact can be used by businessmen that want to achieve
postponing of the taxation in the first years after the acquisition of the
property, because with higher depreciations, we can achieve tax savings.
Accelerated depreciation uses depreciation coefficients instead of depreciation
rates when calculating the tax depreciations. These are delimited by
§ 32 par. 1 ITL. [19, p. 80]
|
Depreciation
groups |
In
the first year of depreciation (K1) |
In
the following years (K2) |
For
a raised market entry price (K3) |
|
1 |
3 |
4 |
3 |
|
2 |
5 |
6 |
5 |
|
3 |
10 |
11 |
10 |
|
4 |
20 |
21 |
20 |
|
5 |
30 |
31 |
30 |
|
6 |
50 |
51 |
|
Table: coefficients for
accelerated depreciations[20]
Source: [19, p. 80]
In case of accelerated tax depreciations,
the calculation procedure in described in § 32 par. 2, ITL. In the first year
of depreciation, the accelerated tax depreciation is stated as a share of the
market entry price and the assigned coefficient for the accelerated
depreciation valid in the first year of depreciation.
Accelerated tax depreciation in the
1st year = 
Where: VC = market entry price
K1
= coefficient of accelerated depreciation for the 1st year
Similarly to steady
depreciations, even here in the case of the first owner, the accelerated
depreciation can be raised by 10 %, 15 % or 20 % of the market entry price of a
certain tangible chattel sorted in the depreciation groups 1-3. As well as with
steady depreciations, this possibility or depreciation increase does not
compensate for the loss of the right for non-investment depreciation.
In the following
taxation periods, the accelerated tax depreciations are calculated as the ratio
of the double of the balance price and the difference between the coefficient
for the accelerated depreciated and the number of years, for which the property
was depreciated. [19, p. 82]
Accelerated tax depreciations on the
following = 
Where: ZC = balance price
K2 = coefficient for the accelerated depreciation
for the following years
n = the number of years for which the property
was depreciated
Steady tax depreciations
as well as accelerated tax depreciations are rounded up to whole crowns. [19, p. 80]
Example
Mr. Novák (sole
proprietor) acquired and started to use a pump with the market entry price of 80 000,-
CZK (2nd group) in 2008, and is its 1st owner. He decided
to depreciate using accelerated depreciations.
Solution
Pump is sorted into the
2nd depreciation group (K1=5, K2 = 6)
|
Depreciation year |
calculation |
Annual depreciation |
Balance price |
|
y.
2008 |
80 000/5 |
24 000,- CZK |
56 000,- CZK |
|
y.
2009 |
2 . 56 000/6-1 |
22 400,- CZK |
33 600,- CZK |
|
y.
2010 |
2 . 33 600/6-2 |
16 800,- CZK |
16 800,- CZK |
|
y.
2011 |
2 . 16 800/6-3 |
11 200,- CZK |
5 600,- CZK |
|
y.
2012 |
2 . 5600/6-4 |
5 600,- CZK |
0,- CZK |
Mr. Novák is the first
owner of the pump, he can therefore increase the depreciation calculated like
this by additional 10% of the market entry price, i.e. by 8 000,-CZK, so
that the depreciation for the year 2008 will be 24 000,-CZK and the
balance price 56 000,-CZK.
It is not possible to
use lower coefficients for the accelerated depreciation than is stated in § 32 par.
1 ITL, because if they would decrease, it could result in increasing the annual
tax depreciation over the sum tolerable in ITL. At the same time, it is not
possible to use higher coefficients, because in the case of accelerated
depreciations, ITL does not mention the stated coefficients as maximal, but it
clearly assigns them to the individual depreciation groups.
2.4.1 Technical valorization during accelerated
depreciation
The procedure with
accelerated depreciation of property on which technical valorization has been
carried out, is executed according to § 32 par. 3 ITL with subsequent use of
the formula
Accelerate depreciation
in the year of increasing the ZC = 
Where: ZZC
= increased balance price,
K3 = coefficient of accelerated depreciation for
the increased balance price.
Formula for the calculation of accelerated depreciations in the years
following the TV:
Accelerated depreciation
in the years following the ZZC = 
Where: ZZC = increased balance price
K3 = coefficient
of accelerated depreciation for the increased balance price
n =
number of years for which it has been depreciated from the ZZC
Example
A company FCX, Inc. has started to use a personal car of the value of
400 000,- CZK in 2005. It has decided to depreciate this car using
accelerated depreciations. During 2006, it has carried out a re-equipment of
the car with air-bags and central lock in the total value of 50 000CZK.
Solution
The personal car has been sorted in to the depreciation group 1a with coefficients K1 = 4, K2
= 5 and for increased ZC, K3= 4.
|
Year of depreciation |
calculation |
Annual depreciation |
ZC |
|
2005 |
400 000/4 |
100 000,- CZK |
300 000,-.CZK |
|
2006 |
2.350 000/4 |
175 000,- CZK |
175 000,- CZK |
|
2007 |
2 175 000/4-1 |
116 667,- CZK |
58 333,- CZK |
|
2008 |
2.58 333/5-2 |
38 889,- CZK |
19 444,- CZK |
|
2009 |
2.19 444/5-3 |
19 444,- CZK |
0,- CZK |
In 2006, TV was finished and the balance price was increased by the TV to
the total 350 000,- CZK. The coefficient K3=4 was used for the
calculation in this year.
In 2008, it was necessary to reclassify the personal car into the 2a
class. The coefficient with the increased balance price of 5 will be used.[21]
2.5 Accounting depreciation of tangible
property
Accounting depreciation
of long-term tangible property follows the accounting regulations. The
accounting depreciations are set according to the real time of usage of the
long-term tangible property. The company can choose its own accounting
depreciations. The accounting depredations stand for the permanent decrease of
the value of long-term tangible property and have to correspond to the real
level of property wear.
Long-term property is
depreciated mainly by the owner (renter) of the property, based on the base of
the depreciation plan. The renter depreciates mainly the TV in terms of
accounting. In addition to that, it is also the property which he is allowed to
account and depreciate it based on the contract of renting the company or its
part. Little deviations from the perspective of the subject authorized to
accounting depreciation of long-term property are then stated for special cases
by § 28 par. 1 of the accounting law.
Accounting depreciations
are applied according to the real time of using of the long-term property. They
are supposed to state the wear extent accurately. The company can choose its own accounting
depreciations, but it has to have in mind that it can use only the height of
the tax depreciations when finding out the tax base, when filling out the
declaration of taxes.
Usually, two methods of accounting depreciation
are used:
Ø According to the usability date
Ø According to productivity
2.5.1 Depreciations According to Usage Time
The company itself state
the usage time of the long-term property. The time for which we want to use the
property in the company is therefore set. The time does not have to correspond
with the depreciation time according to § 30 of the law about the income tax. The
depreciation rate in per cents is counted as 100 / the usage time.
Example
Company management
decides that the usage time of laboratory equipment, which we acquired under an
market entry price of 120 000,- CZK, will be used for 4 years. The
depreciation rate will then be calculated as 100 / 4 years.
The depreciation is 25 %
a year.
The monthly depreciation
is 1 / 12 of the annual depreciation. [25]
2.5.2 Depreciation Method According to the
Productivity
The productivity method
should be used with property where the wear extent is dependent on the level of
the actual utilization of the property. A typical example would be
manufacturing machines. The utilization of the productivity method actually
means the calculation of the depreciation coefficient (usage of a number of
hours, the amount of products etc.), using which the value of the property is
depreciated depending on the extent of its usage.
2.5.3 Discarding of Long-term Property
The basic rules for
applying the balance and acquiring prices in the tax expenses (§ 24 and § 25 ITL)
are listed in the following diagram
Diagram 2.5.1: Balance and
acquiring price of long-term tangible property
Source: [8, p. 141]
The tax balance price of tangible property that has been depreciated for
tax reasons can be included in the tax expenses, if it has been discarded during
the taxation period.
During tangible property discarding, it is often necessary to adjust the
management result during the stating of the tax base – by the difference
between the accounting balance price and the tax balance price.
Inclusion of a tax or accounting balance price into the tax base is,
however, in some cases limited or banned. One of the exceptions is free
property transfer (for example as a deposit in case of a judicial person) and
donation, where the balance price cannot be used for tax reasons. The second
exception is liquidation because of damage. It is necessary to mention that in
this case, damage means damage in such extent that it leads to its discarding.
In that case, the balance price can be included in the tax expenses only if there
is a compensation related to the discarding of such property in the profits,
and that maximally to the value of this compensation. The limitations of
balance price application do not apply on the discarding of property for the
reason of destruction by a natural disaster or according to a police statement,
by an unknown malefactor. [8, p. 141]
0xx long-term 0xx accumulated depreciations 5xx expenses
to the long-term property
acquisition 1 2
price
2xx
financial means 6xx
profits
3
Diagram 2.5.2 accounting of long-term property depreciation
Source: [8, p. 142]
Diagram legend:
1) Discarding of the
acquisition price
2) Depreciation of balance
price – as a result of liquidation (551), as a result of a sale (541), as a
result of damage (548,582)
3) Accepted compensation –
during sale (641), from the insurance company in case of damage (648,688)
In case of selling of
tangible property excluded from depreciation, long-term property, whose
accounting depreciations could not be inscrolled into the base of the income or
land tax, the income from the sale is inscrolled into the taxable incomes of
the taxpayer and the expense for acquiring the property (market entry of
acquiring price) is inscrolled into the expenses. The maximum is, however, the
level of the incomes from the sale. It does not matter, whether the land is in
accounting regarded as long-term property of goods.
Example
A trade company LADA, Inc.
has bought a painting for the decoration of the representational area for 100 000,-
CZK. The market entry price of the painting will not affect the tax base. The
company sub sequentially sold the painting for 80 000,- CZK
Solution:
It the
taxation period, the company sorts the takings from the painting into the
taxable income as well as the market entry price of the sold painting
80 000,-CZK into the approvable costs. In other words, the result of the
management will have to be increased by 20 000,- CZK.
|
Operation |
CZK |
TG |
G |
|
Painting purchase |
100
000 |
032 |
211 |
|
Discarding the
painting during the sale |
100
000 |
541 |
032 |
|
Takings for the
painting sale (cash down) |
80
000 |
211 |
641 |
|
The management result
from the transaction |
-20
000 |
|
|
|
Tax base |
0 |
|
|
2.5.4 Depreciation accounting
Depreciations are
accounted as expenses – accounting class 5, group 55, account 551 -
Depreciations of long-term tangible and intangible property. In case of
long-term tangible property, the accounting class is specifically 0, accounts
of group 08.
Example
Depreciation
accounting
|
Text |
To give (TG) |
given (G) |
|
Monthly
building depreciations |
551 |
081 |
|
Monthly
machine depreciations |
551 |
082 |
|
Monthly
automobile depreciations |
551 |
082 |
As is clear from the example, it is suitable to use analytic evidence for
accumulated depreciation accounting. If we take that the account 022 Individual
tangible items and collections of tangible items is used to record chattel in
the company (machines, devices, means of transport, computer technology), it is
much more suitable to use the analytical record to the account 022 and the same
logic with the account 082 as well, which are accumulated depreciations to this
property. Analytical record is not compulsory. If analytical record is used,
the accounting becomes more transparent and is more credible.
Example
022/001 individual
chattel – personal car
082/001 accumulated
depreciation to chattel – personal car
The accounting depreciations are accounted into the expenses. That means
that a difference between the accounting and tax depreciations can occur.
Because of this, the base of the income tax has to be changed by this
difference. The tax depreciations are a kind of a maximum price that can be
applied. The tax depreciations therefore set the tax credibility of the
depreciations.
During the
calculation of the base of the income tax, the difference between the
accounting and tax depreciations is found out.
Difference between the tax and accounting
depreciations
|
Accounting
depreciations = tax depreciations |
The tax
base need not be changed |
|
Accounting
depreciations > tax depreciations |
The tax
base is increased by the difference between the depreciations |
|
Accounting
depreciations < tax depreciations |
The tax
base is decreased by the difference between the depreciations |
Many accounting units avoid the situation, when it is necessary to adjust
the tax base simply by stating that the depreciations are equal in the internal
directives of their accounting unit. As for tax, this solution is not unsafe,
since the income tax base is in conformity with the law. As for the accounting,
however, this is not OK. We violate the rule of accurate representation – the
accounting does not completely reflect the reality. Even if we stated that the
property lifespan will be the same as is stated in the law about the income
tax, there often is a difference in the year of acquisition of the long-term
property.
Accounting depreciation should be depreciated only for the time of the
actual usage, that means for example, when we sort the property in November, we
can only apply the accounting depreciations for 2 calendar months, for tax, we
can, however, apply the depreciation for the whole year even if the property
was used only for one month a year. The same problem occurs in the case of
sorting of long-term property.
In case of
accounting units, that are obliged to find out and account the postponed income
tax (accounting units that create a unit of consolidation and accounting units
that compile the final accounts n the whole extent i.e. on which the obligation
to check the final account by an auditor does not apply), the difference
between the accounting and tax depreciations is subject to the postponed tax.
[25]
2.5.5 Property Inventory
The accounting units use the property inventory to check the real state
of property to the day of regular and exceptional final accounts and then compare
it to the accounting state. The accounting unit has the duty to prove that it
has checked the real state of the property do the financial office and to an
auditor during a financial control.
Stocktaking
The most important part of inventory is stocktaking. By it, we mean a
real determination of the state if the property to a certain day and recording
to that state. The real state is determined by:
Physical stocktaking – in case of tangible, possibly intangible property
(software),
LTTP – we determine its amount, identity, usability
Compiling Stocktaking
Lists
Determined property states are recorded into stocktaking lists. Their
stocktaking number (in case of long-term property), name of the property,
property valuation to the moment of stocktaking completion, the moment of the
beginning and ending of the stocktaking are recorded in the lists.
Comparison of the
Real State with the Accounting State
The real state is compared with
the state in the accounting documents, the so-called long-term property with
data in the stocktaking cards. The following can be found out by the comparison
result:
Deficit – the real state of the property is lower than the data in the
accounting (we miss some property)
Surplus – the real state of the property is higher than the accounting
data states
The desirable state is when the real state s the same as the accounting
state.
Settling up inventory
differences
After the end of inventory, al the differences have to be balanced. The
deficits are usually subscribed to the persons directly responsible for the property;
the reasons for a surplus have to clarify.
The inventory is carried out by an inventory committee, which is
appointed by the director of the accounting unit. The result of the inventory
is recorded by the committee into an inventory record, which has to be signed
by the person responsible for the inventory.
We differentiate between these types of inventory:
1. according to the
extent
Ø
complete, that relate to all the property
Ø
partial, relating only to certain parts of the
property
2. according to the
type
Ø
periodic inventories
Regular –the
organizations that carry out e.g. a physical inventory of tangible property,
which cannot be carried out towards the end of the balance day, to the moment
of the compilation of the final accounts, the accounting unit can carry it out
during the last four years of the accounting period, or in the first month of
the following period.
Exceptional – inventories
are carried out e.g. because the company’s activity is stopped, if the
responsible persons are changed, the organization of the company is changed or
in other exceptional situations.
Continuous inventories
– a concurrent inventory can be carried out by the accounting unit only
with such long-term property that is still on the move and changes its
direction. The term of the inventory can be set by the accounting unit itself;
however, the property has to be inventoried at least once an accounting period.
In case of long-term property, the accounting unit can carry out the inventory
once in a longer time period, it can not, however, exceed the time of two
years. An accounting unit is obliged to prove it has carried out an inventory
of all cases of property during five years.
The accounting unit concludes an agreement of responsibility over the
consigned property (so-called material responsibility) with the employees that
are supposed to care about the given property. The agreement is an appendix to
the job contract and has to be settled in a written form. [9, p. 16]
Conclusion
In this Bachelor Thesis, I have dealt with long-term tangible property. I
have divided it into two parts. The first part deals with the defining of
long-term tangible property, its delimitation from both the perspectives of tax
and accounting and its valuation.
In this paper, I have
cleared how to valuate property with a price from which it will gradually be
depreciated and how to correctly determine when does the tangible property
really become long-term tangible property from the tax and accounting
perspective, which is vital for the calculation of accounting and tax
depreciations. The time of accounting and tax depreciation begins based on this
determination.
From the tax
perspective, long-term property is not entirely identical to the accounting
perspective. Some categories of the income tax are defined directly by the
income tax law, elsewhere; the tax regulations do not need special adjustment,
thus respecting the properly accounted expenses of the accounting unit. The
income tax law does not directly define the term long-term property; it mentions
only tangible and intangible property.
In the second part, I
have concentrated on long-term tangible property depreciation and have
explained the difference between the accounting and tax depreciations. I have
mentioned mainly that these two groups should not be mistaken. In most cases,
businessmen use only tax depreciations, which can be done, according to the
accounting law, done by businessmen who are not accounting units. On the other
hand, businessmen that keep accounting and are accounting units are obliged to
keep accounting depreciation by the law. By the accounting depreciations, we
express the real wear of the property and the objectivity of the management.
However, tax depreciations express the tax load and will affect the income tax
base. I have also occupied myself with the influence of the tax depreciations
on the tax base optimization, mainly usage of lower depreciation rates than the
maximal ones and deprecation interruption, so that the accounting unit could
apply tax discounts.
Because to the world
wide crisis, which has occurred already with the beginning of 2009, it was
necessary that the government accepted some measures and reacted on the
situation, mainly for the reason of preventing liquidation of small and bigger
companies and increase of unemployment. The first measure to come was a
novelization of the value added tax law n. 87/2009 Sb., valid from 4/1/2009,
which cancelled the former ban of VAT depreciation of personal cars.
Due on 7/20/2009, the
income tax law was novelized by the law n. 216/2009 Sb., mainly in the part on
exceptional depreciations of new tangible property acquired since 1/1/2009 (§
30a ITL), which allows faster projection of the depreciations into the
expenses. The exceptional depreciation can be used only for new tangible
property acquired since the 1st of January 2009 to the 30th
of June 2010, sorted in the first two depreciation groups. This measure is
supposed to stimulate the taxpayers to acquire new tangible property, resulting
into an increase of producer sales and keeping the employment and production
level. For the 1st depreciation group, it is possible to depreciate
the market entry price steadily for 12 calendar months and in case of property
belonging to the 2nd depreciation group, to depreciate the market
entry price for 24 calendar months in a way that the first 12 months 60% of the
price are steadily depreciated and the remaining 40% are steadily depreciated
during the remaining 12 months.
In the end, I would like
to say that based on the study of the literature and available information I
worked with, I tried to fulfill the aim of the bachelor thesis and to become
familiar with the basis of the problem of tax and accounting depreciation and
therefore ease the basic orientation in the problem.
Summary
ZELINKOVÁ, J. Dlouhodobý hmotný majetek v účetnictví a daních. Hodonín 2010. Bachelor Thesis. Evropský polytechnický institut, s.r.o.
Supervisor prof. Ing. Jaroslav Ďaďo, PhD
Key words:
Long-term property, delimitation of property, property valuation, tangible
property, petty property, acquisition price, technical valorization, tax and
accounting depreciations, balance price, steady and accelerated depreciations, property
inventory
The Bachelor Thesis Long-term tangible property in accounting and taxes
deals with delimiting of the property from both the perspectives of accounting
and taxes, its correct sorting and valuation, stating the depreciation form
from the time perspective and the technical valorization of the property.
Furthermore, tax and accounting depreciation of long-term tangible property is
mentioned in detail in here. In the other part, I have informed on the
government regulations presented by the novelizations of the laws.
The aim of this Bachelor Thesis was to give a transparent summary of
accounting and tax depreciations, including practical examples, mainly for
business companies, physical persons, accountants, company managers and other
wider public for an easy understanding of the problem and fulfillment in
practice.
Bibliography:
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[22] Daňové zákony v úplném znění k 1. 9. 2009 s přehledy změn, Olomouc : Anag, 2009. ISBN 978-80-7263-547-4
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[23] Klára Soukupová Odpisy hmotného majetku v účetnictví a daňové
evidenci
[on-line] 2008, [cit. 13. 1. 2010].
Dostupný také z www: http://www.podnikatel.cz/clanky/odpisy-hmotneho-majetku-v-UCE-a-dan-evidenci/
[24]Z Zákon č. 586/1992 Sb., o daních z příjmu [on-line] 2009, [cit. 28. 12. 2009]. Dostupný také z www: http://business.center.cz/business/pravo/zakony/dprij/
[25] Vyhláška č. 500/2002 Sb., kterou se provádějí některá ustanovení zákona č.563/1991 Sb., o účetnictví, ve znění pozdějších předpisů, pro účetní jednotky, které jsou podnikateli účtujícími v soustavě podvojného účetnictví, [on-line] 2009 [cit. 28, 12 .2009]. Dostupný také z www: http://business.center.cz/business/pravo/zakony/ucto-v2002-500/cast4.aspx
Zákon č. 586/1992 Sb., o
daních z