Enable accurate AUC tax depreciation

[Former Member]

How to Enable accurate AUC tax depreciation?

[Former Member]

Hello,

Assumption: Depreciation is just for reporting as per IT act

Assign the depreciation key with the rate only for the IT depreciation area, in relation to the asset class which is created for AUC.

Regards

Anantha

[Former Member]

Hi Divya,

Depending on the country in which your organisation is located, you can config Tax Depreciation on AUC. Some countries grant <b>Capital Allowances</b>. This is configured in the system as Tax Depreciation. The following explanation should aid your understanding.

<b>Tax Depreciation</b> – Use Straight line calculation with different allowance rates depending on the nature of the asset. Under the requirements for Tax depreciation, most times, a notional value of 1% of the capitalisation value is retained. Sometimes, there is also an additional allowance granted in the first year according to the location. Note also that <b>capital allowances</b> are most times claimed from the point of expenditure. I.e. They are claimed on <b>Assets Under Construction</b>.

<u><b>Tax Allowances</b></u>

Tax allowances apply to Assets in some countries. The basic allowances are can be 20% per annum on a straight line basis, but the final year is calculated at 19%. The principle is that all assets retain a notional 1% of their value. In addition to this basic rate, certain types of expenditure attract an additional allowance which is allowed in the first year of expenditure, as follows;

<u><b>Location Applicable Rate</b></u>

Onshore - 5%

Offshore – Shallow - 10%

Offshore – Deep - 15%

Offshore - Ultradeep - 20%

The system configuration would be;

1. Create a new <b>base method</b> for use by these depreciation keys. (<i><b>SPRO-> Financial Accounting-> Asset Accounting-> Depreciation-> Valuation Method-> Depreciation Key-> Calculation Methods-> Define Base Methods</b></i>)

2. Create a <b>multilevel method</b> to reflect each tax requirement. (Use Txn Code: <b>AFAMS</b>)

3. Configure new <b>depreciation keys</b> for use in Tax Depreciation area. (Use Txn Code: <b>AFAMA</b>)

<u><b>Note</b></u> that this requirement extends to Assets Under Construction. The requirement for Assets under Construction is;

1. Capital allowances are charged on Assets Under Construction on the basis of a whole years allowance for expenditure in each year of expenditure.

2. Expenditure incurred needs to be determined on an annual basis to ensure that the full 5 year allowance is claimed. You can handle this by the use of sub-numbers to represent each year in fixed assets.

I hope the above helps.

Do not forget to award the points please.

Regards,

Jacob

[Former Member]

Hi Divya

As per IAS 16, AUC should not be depreciated.

Thanks

Ashok

[Former Member]

Hi,

To my knowledge there is NO tax for AUC. and once AUC is completed it is settled to Asset then the depreciation starts.

Thank you,

Misbah