Fixed assets - definition

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As a rule, it is impossible to run a business without tangible assets, such as a computer, car or production machines.When can they qualify as fixed assets? What methods of depreciation of fixed assets can be used? We explain below.

Fixed assets - what are they?

According to Art. 22a (1) of the PIT Act, the following are considered fixed assets:

  • structures, buildings and premises owned separately,

  • machines, devices and means of transport,

  • Other items,

which meet the following conditions:

  • owned or jointly owned by the taxpayer,

  • acquired or manufactured on its own,

  • complete and serviceable,

  • with an expected useful life of more than 1 year,

  • used by the taxpayer for the purposes related to his business activity or put into use on the basis of a rental, lease or leasing agreement.

Important!

According to Art. 22a paragraph. 2 of the PIT Act, regardless of the period of use, the following are considered fixed assets:

  • investments in foreign fixed assets accepted for use,

  • buildings and structures built on someone else's land,

  • structures, buildings, separate-owned premises, machinery, equipment, means of transport and other items not owned or jointly owned by the taxpayer, used by the taxpayer for the purposes related to the activities carried out on the basis of a financial lease agreement.

Depreciation of fixed assets

All the above-mentioned assets, recognized as fixed assets, are subject to depreciation. Nevertheless, Art. 22c of the PIT Act clearly indicates that the following are not subject to depreciation:

  • land and perpetual usufruct rights to land,

  • residential buildings with cranes located in them or residential premises used for business activity or leased or rented under a contract, if the taxpayer does not decide to depreciate them,

  • works of art and museum exhibits,

  • goodwill,

  • assets that are not used as a result of suspension of economic activity under the provisions on freedom of economic activity or cessation of the activity in which these assets were used; in this case, these components are not depreciated from the month following the month in which the activity was suspended or discontinued.

Assets classified as fixed assets should be included in the register of fixed assets in the month of their commissioning at the latest.

Important!

Newly purchased assets that meet the conditions for recognition as fixed assets, the value of which does not exceed PLN 3,500, can be recognized directly in tax deductible costs. Then they are not shown in the register of fixed assets.

Fixed assets and determination of their initial value

In order for a given fixed asset to be depreciated, its initial value must be determined, on which depreciation charges will be calculated. The method of valuation depends on how it was introduced into the company, as presented in the table below.

Acquisition method

Method of valuation

Purchase

purchase price

Partial purchase for consideration

purchase price increased by the value of the income specified in art. 11 sec. 2b of the PIT Act

Producing on your own

manufacturing cost

Inheritance, donation, other unpaid way

market value on the day of purchase, unless the donation agreement or the free transfer agreement specifies this value at a lower amount

Methods of depreciation of fixed assets

The provisions of the PIT Act provide for several depreciation methods:

  • linear

  • individual linear

  • accelerated linear

  • degressive

  • disposable

Linear depreciation of fixed assets

Fixed assets are depreciated in accordance with the List of depreciation rates, which is attached to the PIT Act. This is the simplest depreciation method that assumes that an asset is evenly worn throughout its useful life.

Example 1.

The taxpayer purchased a passenger car for the company on the basis of a VAT invoice, a margin of PLN 15,000. How will the depreciation work?

According to the list of depreciation rates for passenger cars (KŚT 741), the annual depreciation rate is 20%.

Depreciation period: 100% / 20% = 5 years

Annual depreciation charge: PLN 15,000 x 20% = PLN 3,000

Monthly depreciation charge: PLN 3000/12 months = PLN 250

Linear individual depreciation method

The individual linear method has been regulated in Art. 22j of the PIT Act. The application of individual depreciation rates is possible only in the case of improved and used fixed assets, entered for the first time in the register of fixed assets of a given taxpayer.

The legislator imposes that the depreciation period cannot be shorter than:

  • for fixed assets included in groups 3-6 and 8 of the Classification:

    • 24 months - when their initial value does not exceed PLN 25,000,

    • 36 months - when their initial value is above PLN 25,000 and does not exceed PLN 50,000,

    • 60 months - in other cases;

  • for means of transport, including passenger cars - 30 months;

Fixed assets included in groups 3-6 and 8 KŚT and means of transport are considered as:

  • used - if the taxpayer proves that they were used for at least 6 months before their acquisition, or

  • improved - if, before being entered into the records, the expenses incurred by the taxpayer for their improvement constituted at least 20% of the initial value.

  • for buildings (premises and structures other than those listed in points 4 - 10 years, except for:

    • permanently attached to the land commercial and service buildings of type 103 of the Classification and other non-residential buildings of type 109 of the Classification, permanently attached to the land,

    • goods kiosks with a cubature of less than 500 m3, camping houses and substitute buildings,

- for which the depreciation period cannot be shorter than 3 years;

Buildings (premises) and structures are considered as:

  • used - if the taxpayer proves that they were used for at least 60 months before their acquisition, or

  • improved - if, before entering into the records, the expenses incurred by the taxpayer for the improvement constituted at least 30% of the initial value.

  • for non-residential buildings (premises) for which the depreciation rate from the List of depreciation rates is 2.5% - 40 years minus the full number of years from the date of their first use for use until the date of entry into the register of fixed assets and intangible assets and legal entities run by the taxpayer, but the depreciation period may not be shorter than 10 years.

Linear accelerated depreciation method

The accelerated linear method consists in increasing the depreciation rate from the list by an appropriate factor specified in the Act. According to Art. 22i paragraph. 2 of the PIT Act, depreciation rates can be used for:

  • buildings and structures used in the conditions of:

    • deteriorated - using coefficients not higher than 1.2,

    • bad - using coefficients not higher than 1.4;

  • machines, devices and means of transport, except for marine floating rolling stock, used more intensively in relation to average conditions or requiring particular technical efficiency - with the use of coefficients not higher than 1.4 in this period;

  • for machines and devices included in groups 4-6 and 8 of the Fixed Assets Classification (KŚT) issued on the basis of separate regulations, hereinafter referred to as "Classification", subject to rapid technical progress - with the use of coefficients not higher than 2.0.

In order to unequivocally determine whether the increase in the depreciation rate will be justified in a given case, it is necessary to know the basic definitions:

  • deteriorated conditions for the use of buildings and structures occur when they are used under the constant action of water, water vapors, significant vibrations, sudden temperature changes and other factors that accelerate the wear of the object;

  • poor conditions for the use of buildings and structures occur when they are used under the influence of destructive chemicals, especially when they are used for the production, manufacture or storage of corrosive chemicals;

  • machines, devices and means of transport requiring particular technical efficiency are objects that are used in three-shift work, although they do not operate in continuous motion by nature, used in field conditions, in forest conditions, underground or other conditions indicating more intense wear.

  • machines and devices of groups 4-6 and 8 of the Classification of Fixed Assets (KŚT), subject to rapid technical progress, are machines, devices and apparatus in which microprocessor systems or computer systems are used, fulfilling the assumed functions thanks to the use of the latest technological achievements, and also other research and development equipment as well as experimental and production equipment.

Important!

In the event of the occurrence or termination of the conditions justifying the increase in the rates referred to, these rates shall be increased or decreased from the month following the month in which the circumstances justifying these changes occurred.

Declining method of depreciation of fixed assets

The possibility of using the degressive method results from Art. 22k paragraph 1. the PIT Act. According to its content, depreciation write-offs can be made from the initial value of machinery and equipment included in groups 3-6 and 8 of the Classification and means of transport, excluding passenger cars, in the first tax year of their use, using the rates given in the List of depreciation rates increased by the coefficient no higher than 2.0, and in the following tax years from their initial value less current depreciation charges, determined at the beginning of subsequent years of their use. Starting from the tax year in which the annual depreciation amount determined in this way would be lower than the annual depreciation amount calculated using the straight-line method, taxpayers make further depreciation write-offs in accordance with the straight-line method.

Example 2.

On September 25, 2016, the entrepreneur purchased a truck worth PLN 20,000 for the company under a sales contract. The basic depreciation rate is 20% (for KŚT 742). The taxpayer wants to increase the depreciation rate by a factor of 2.0. How will this asset be depreciated?

Year 2016

Basic depreciation rate: 20%

Annual depreciation using the straight-line method: PLN 20,000 x 0.2 = PLN 4,000

Monthly depreciation write-off: 4,000 / 12 months = PLN 333.33

Increased depreciation rate: 20% x 2.0 = 40%

Annual depreciation charge, degressive method: PLN 20,000 x 40% = PLN 8,000

Monthly depreciation, degressive method: PLN 20,000 / 12 months = PLN 666.66 (October, November, December)

2017 year

Depreciation base using the declining method: 20,000 - (3 x PLN 666.66) = PLN 18,000.02

Annual depreciation charge, degressive method: PLN 18,000.02 x 40% = PLN 7,200

Monthly depreciation, degressive method: PLN 7,200 / 12 months = PLN 600 (January-December 2017)

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2018 year

Depreciation base using the declining method: 18,000.02 - (12 x 600 PLN) = 10,800.02 PLN

Annual depreciation charge, degressive method: PLN 10,800.02 x 40% = PLN 4,320

Monthly depreciation, degressive method: PLN 4320/12 months = PLN 360 (January-December 2018)

2019 year

Depreciation base using the declining method: PLN 10,800.02 - (12 x PLN 360) = PLN 6,480

Annual depreciation charge, degressive method: PLN 6480 x 40% = PLN 2592

Monthly depreciation with the degressive method: PLN 2,592 / 12 months = PLN 216 → due to the fact that the depreciation write-off is lower than with the straight-line method (PLN 333.33), the taxpayer changes the method from the degressive to the straight-line method.

Depreciation using the straight-line method will last from January 2019 to August 2020. The last depreciation write-off in this case will amount to PLN 146.69.

One-off depreciation of fixed assets

The legislator provided for two varieties of the one-time depreciation method:

  • one-off depreciation of low-value fixed assets,

  • one-off depreciation under de minimis aid.

In the case of low-value fixed assets with a value not exceeding PLN 3,500 (net for active VAT payers, gross for entities exempt from VAT), the taxpayer may make a one-time depreciation write-off in the month of taking the fixed asset for use. This possibility applies to all fixed assets, including passenger cars.

In the case of one-off depreciation under de minimis aid, we are dealing with fixed assets whose initial value exceeds PLN 3,500. Importantly, the possibility of applying a one-off depreciation under de minimis aid applies only to small taxpayers and taxpayers starting business activity. In this case, one-off depreciation may include only those fixed assets which are included in the group 3-8 KŚT, excluding passenger cars.

The depreciation write-off is included in the tax deductible costs in the month of taking the fixed asset into use, up to the amount not exceeding in the tax year the equivalent of EUR 50,000 of the total value of these depreciation write-offs.

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How do I post a purchase of fixed assets?

Users of the wfirma.pl online accounting system can post the purchase of a fixed asset in a few simple steps. To do this, go to the EXPENDITURE >> ADD EXPENSE tab and select the option

  • VAT INVOICE - when the purchase is documented with a VAT invoice,

  • INVOICE (WITHOUT VAT) - when the purchase has been documented with a purchase contract, a VAT invoice, margin.

The next step is to choose the type of expense: PURCHASE OF FIXED ASSETS. After completing the seller's data and basic invoice data (number, issue date, date of receipt, payment date), complete the same data regarding the fixed asset, i.e .:

  • name,

  • KŚT,

  • depreciation method,

  • depreciation rate,

  • date of putting the fixed asset into use,

  • initial value.

After saving, the system will automatically generate an OT document, which should be printed from the RECORDS >> ASSET >> DOCUMENTS tab. Copies of documents confirming the initial value of the fixed asset must be attached to the printout.

The expenditure (VAT invoice) will be included in the VAT Purchase Register. On the other hand, the book of income and expense will receive depreciation in accordance with the depreciation schedule, which is available in the tab RECORDS >> ASSETS >> FIXED ASSETS FILE.