Home – New Forums Money matters How to treat Assets for Accounting Purposes

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  • #984380
    globeglimpser
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    Hi all – business newbie here.

    I have recently started a photography business and as such will be purchasing some equipment (all individual items cost less than $3000 each). I was hoping someone could tell me how to treat these purchases as I would like to take advantage of the 100% tax write off.

    My thinking is that I either treat the assets as expenses or I create an account for deprecation and accumulated depreciation which I would very much prefer to do.

    Additionally – how would I treat any Capital equipment contributed, ie. purchases made pre-registration. I have just debited my assets and credited owner contribution – is that acceptable?

    Thanks in advance for the responses

    #1147354
    Anonymous
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    Hi globeglimpser,

    I hope you don’t mind, but I’ve moved your post over here to the Money matters section of the forum, where it will be more readily spotted by those who are best placed to advise you.

    I’m sure someone will be along to give you some guidance shortly, but in the meantime, you might like to wander over to the New members section of the forum and tell us all a bit about yourself and your new business.

    Welcome aboard,
    Jayne

    #1147355
    Past-Member
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    As long as you are eligible as a business to have tax deductions (ie turn over more than $20K etc see ATO.gov.au for more info), then anything $6500 and under is now a direct expense.

    I recently had to change a couple of my purchases from Capital Assets to normal Expenses after consulting my accountant.

    Cheers.

    #1147356
    StellarScott
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    Hi all

    My view is that true assets under the threshhold should still be treated as assets and depreciated according to their useful lives.

    For the owners purposes this will give a far better picture of the profitability of the business. For our photographer purchasing $30,000 on equipment that lasts 5 years this would make a $24000 difference in profit in year 1.

    Your accountant/bookkeeper can make the appropriate adjustments for your tax return.

    #1147357
    James Millar
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    There is a disparity between what’s best (legal) for tax purposes and what’s best for accounting reporting purposes. On the one hand your goal should be to reduce business taxable income as much as possible and as quickly as possible but on the other hand, as stellarscott points out, this will not produce a true representation of the depreciation of the asset over its productive life. In other words you will distort financial performance (adversely) if you write off assets prematurely.

    How do we address this?

    You can either maintain two depreciation schedules (one tax and one accounting) and make tax adjustments in your tax calculations or you can just accept the lower financial performance result and be aware of its implications (harder to get bank finance for example).

    I recommend that you at least capitalise the low value items (under $6500) to a balance sheet fixed assets account and then depreciate them from there (100% is allowed in those cases for small business). The write off is just an accelerated depreciation expense and it achieves the exact same taxation outcome as expensing directly to the profit and loss statement. However in capitalising the asset first you will have an asset register on the balance sheet depicting a range of potentially valuable items that the business owns. An asset register of this collateral may be useful with finance, insurance claims, business sale etc at some point.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
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