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Are the expenses incurred for the purchase of fixed assets allowed to be deducted from the income?
Are the expenses incurred for the purchase of fixed assets allowed to be deducted from the income?
Before we get into how to calculate the cost of fixed assets, let's look at what is meant by fixed assets for tax accounting purposes.
Article 13.2.17 of the Tax Code states that fixed assets are defined as tangible assets with a useful life of more than one year and a value of more than 500 manats, which must be amortized in accordance with Article 114 of the Tax Code.
Example. The taxpayer bought a wardrobe worth 300 manats and assumed that he would use that fixed asset within 3 years. From the point of view of accounting, the wardrobe should be considered as a fixed asset, but from the point of view of tax accounting, since the value of that wardrobe is below 500 manats, it is not considered a fixed asset and depreciation is not calculated.
Let's consider the requirements of the tax legislation regarding the costs incurred for the purchase or installation of fixed assets. According to Article 109.1 of the Tax Code, the costs incurred for the purchase and construction of fixed assets and other capital expenses in accordance with Article 143 of the Tax Code are not allowed to be deducted from direct income.
The costs incurred for the purchase and construction of fixed assets increase its balance value and are deducted from income in the form of depreciation allowances in subsequent accounting periods.
Example. "A" MMC bought a transformer in the amount of 6,000 manats and spent 2,000 manats on its installation. 2000 AZN is added to the cost of the installation and the cost of the fixed assets is 8000 AZN (6000 AZN + 2000 AZN). That is, it is not allowed to deduct 2,000 manats from direct income.
Before we get into how to calculate the cost of fixed assets, let's look at what is meant by fixed assets for tax accounting purposes.
Article 13.2.17 of the Tax Code states that fixed assets are defined as tangible assets with a useful life of more than one year and a value of more than 500 manats, which must be amortized in accordance with Article 114 of the Tax Code.
Example. The taxpayer bought a wardrobe worth 300 manats and assumed that he would use that fixed asset within 3 years. From the point of view of accounting, the wardrobe should be considered as a fixed asset, but from the point of view of tax accounting, since the value of that wardrobe is below 500 manats, it is not considered a fixed asset and depreciation is not calculated.
Let's consider the requirements of the tax legislation regarding the costs incurred for the purchase or installation of fixed assets. According to Article 109.1 of the Tax Code, the costs incurred for the purchase and construction of fixed assets and other capital expenses in accordance with Article 143 of the Tax Code are not allowed to be deducted from direct income.
The costs incurred for the purchase and construction of fixed assets increase its balance value and are deducted from income in the form of depreciation allowances in subsequent accounting periods.
Example. "A" MMC bought a transformer in the amount of 6,000 manats and spent 2,000 manats on its installation. 2000 AZN is added to the cost of the installation and the cost of the fixed assets is 8000 AZN (6000 AZN + 2000 AZN). That is, it is not allowed to deduct 2,000 manats from direct income.