The issue of establishing depreciation and amortization periods often causes difficulties, because they determine the amount of expenses and affect the financial result of the enterprise. Although the procedure for calculating depreciation and amortization is regulated by NAS 7, tax legislation establishes its own minimum permissible limits, which must be observed regardless of the specifics of the use of the asset. How to correctly choose the useful life of fixed assets that have been in operation, and how to avoid mistakes when reconciling accounting and tax norms – read below.
Useful life
According to item 14.1.3 of the Tax Code of Ukraine (hereinafter - the Tax Code), depreciation and amortization are a systematic allocation of the cost of fixed, other non-current and intangible assets that are depreciated and amortized over the period of their useful life (operation).
Item 138.3.3 of the Tax Code establishes the minimum allowable depreciation and amortization periods for fixed assets and other non-current assets (except in the case of using the production method of depreciation and amortization).
If the useful life (operation) of an asset in accounting is less than the minimum allowable depreciation and amortization periods for fixed assets and other non-current assets, then the periods established in item 138.3.3 of the Tax Code of Ukraine are used to calculate depreciation.
In the event that the useful life (operation) of a fixed asset in accounting is equal to or greater than those established in item 138.3.3 of the Tax Code, the useful life established in accounting is used to calculate depreciation.
Accrual of depreciation and amortization
Item 23 of the National Accounting Standard 7 "Fixed Assets" (hereinafter - NAS 7), approved by Order of the Ministry of Finance No. 92 of April 27, 2000, stipulates that depreciation and amortization are charged during the useful life (operation) of the object, which is established by the enterprise (in the administrative act) when recognizing this object as an asset (when credited to the balance sheet), and is suspended for the period of its reconstruction, modernization, completion, additional equipment and conservation.
In tax accounting, the minimum allowable depreciation period (except for the case of applying the production method of depreciation) of the cost of a purchased (received free of charge) fixed asset that was in use is established by the enterprise (in a regulatory act) when recognizing this object as an asset (when credited to the balance sheet), however, it cannot be less than the minimum permissible terms specified in item 138.3.3 of the Tax Code.
