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My point is ISA 16 states that capitalise purchase price excluding tax but the entity acquired it as an ultimate consumer so no reason to pass on tax to the supplies! I think sales price of PPE including S.tax should be reported.
Assuming that the company is registered for sale tax (which is called VAT in the UK) then the rule throughout the European Union is that any sales tax that was paid when buying the asset is recovered from the government – either by reducing the tax they would otherwise have been paying, or by getting it refunded by the government.
Therefore the only cost to the company is the price excluding sales tax, and therefore it is the price excluding sales tax that is capitalised.
(If the company is not registered for sale tax – because they are small and prefer not to register – then they do not recover the sales tax and the full amount (including sales tax) is capitalised.)
These are the tax rules in the European Union.
I do suggest that you watch my free lectures on sales tax. The lectures are a complete free course and cover everything needed to be able to pass the exam will.
Thanks for the prompt reply.
IAS16 states para16 The cost of an item of property, plant and equipment comprises:
(a) its purchase price, including import duties and non-refundable purchase
taxes, after deducting trade discounts and rebates.
If VAT on PPE is not a non-refundable purchase tax for registered & non registered entities. and registered companies can recover it from gov then it simply means they dont pay VAT on PPE. Is it so?When they pay the supplier, the amount paid will include sales tax. However, as I wrote in my previous reply, assuming that the business is registered for sales tax then the tax is recovered by the business (either by reducing the sales tax already payable, or by a refund from the state). Therefore the actual cost to the business excludes sales tax and it is therefore only this amount that is capitalised.
Again, have you watched my free lectures on sales tax?
I am not preparing for any exam but I was just revising IAS16 though I’ve Only F8 and F9 remaining in the foundation module. but I do appreciate the availability of tutors and free resources at opentuition.com. Keep it up!
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