- This topic has 10 replies, 8 voices, and was last updated 14 years ago by
.
- Posts
Please have a look at this wuestion taken from question 46 on the pilot paper
Gareth, a sales tax registered trader purchased a computer for use in his business. The invoice for the computer showed
the following costs related to the purchase:Computer 890
Additional memory 95
Delivery 10
Installation 20
Maintenance (1 year) 25TOTAL 1,040
Sales tax (17.5%) 182
TOTAL 1,222
How much should Gareth capitalise as a non-current asset in relation to the purchase?
A $1,222
B $1,040
C $890
D $1,015So the correct answer given is option D.
My question is don’t we also capitalise some of the Sales Tax? Do we capatalise Fixed Assets at their Net cost? I’m getting mixed replies from the internet.
A quick answer would be appreciated. Many thanks in advance
In my country, sales tax can be capitalized in some cases, ie: if the machine bought to be used in production whose products not imposed VAT tax, sales tax will be added to the cost of asset…
It depends on law in each country,…It is true that different countries have different rules.
However Paper F3 cannot deal with this. For Paper F3, all sales tax suffered is claimable against all sales tax collected.
So for this exam, sales tax is NEVER capitalised. Never ever 🙂
i think we capitalize those costs which are necessary to start the machine like installation etc and those costs which extends the life of machine…
at start there is no need of maintenance..
INTERNATIONAL ACCOUNTING STANDARD 16
PROPERTY, PLANT AND EQUIPMENT
Subsequent costs
12 ) Under the recognition principle in paragraph 7, an entity does not recognise in the carrying amount of an item of property, plant and equipment the costs of the day-to-day servicing of the item. Rather, these costs are recognised in profit or loss as incurred. Costs of day-to-day servicing are primarily the costs of labour and consumables, and may include the cost of small parts. The purpose of these expenditures is often described as for the ‘repairs and maintenance’ of the item of property, plant and equipment.As far as I know, the sales tax should be included in the cost of purchasing a non-current asset and thus capitalised, if it is of ‘irrevocable’ nature. Otherwise it should be written off as an expense.
Correct me if I am wrong.
Regards,
@alisharifazadeh said:
As far as I know, the sales tax should be included in the cost of purchasing a non-current asset and thus capitalised, if it is of ‘irrevocable’ nature. Otherwise it should be written off as an expense.Correct me if I am wrong.
Regards,
Dear compatriot alisharifazadeh
capitalization of sales tax depend on your region legislation and local tax law, so rationally, when u buy a machine for producing goods for sale, actually u r not a final consumer of this machine and still you are in the chain of value adding of the production and distribution. so in this case u have to record the sales tax of the machine in the sales tax account, it means that u can not capitalize it but when you are going to purchase a machine for your own use the sales tax paid should be capitalized because u can not recover it. however, in respect of the F3’s scope, every sales taxes given in the questions are recoverable except the sales taxes paid for non-business deals.good luck
- You must be logged in to reply to this topic.