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Can the cost of the spare part be fully deducted from income?
Can the cost of the spare part be fully deducted from income?
The value of the equipment recorded on our company’s balance sheet amounts to 200,000 manats. One of the spare parts (components) of this equipment has failed, and a new spare part worth 15,000 manats has been purchased and installed to replace it.
Our question is: can the 15,000-manat cost of the spare part be fully recognized as an expense deductible from income, or should the repair cost norm specified in Article 115 of the Tax Code (5% for equipment) be applied, allowing only 200,000 × 5% = 10,000 manats to be expensed, with the remaining 5,000 manats added to the asset’s value and capitalized?
According to the State Tax Service under the Ministry of Economy, pursuant to Article 115.1 of the Tax Code, the amount of repair expenses deductible from income for each year is limited to 5% of the year-end residual value of machinery and equipment for each category of fixed assets, based on the residual balance value at the end of the previous year.
In this case, in subsequent tax years, the deductible limit for repair expenses is increased by the difference between the actual amount of repair expenses and the amount calculated within the established limit. The amount exceeding the established limit is added to the residual value of the fixed asset (property) at the end of the current tax year.
In response to the inquiry, it was stated that the expenses incurred in the mentioned case are considered repair expenses. Such expenses should be deducted from income within the established limit, while the excess portion should be added to the residual value of the fixed asset.
The value of the equipment recorded on our company’s balance sheet amounts to 200,000 manats. One of the spare parts (components) of this equipment has failed, and a new spare part worth 15,000 manats has been purchased and installed to replace it.
Our question is: can the 15,000-manat cost of the spare part be fully recognized as an expense deductible from income, or should the repair cost norm specified in Article 115 of the Tax Code (5% for equipment) be applied, allowing only 200,000 × 5% = 10,000 manats to be expensed, with the remaining 5,000 manats added to the asset’s value and capitalized?
According to the State Tax Service under the Ministry of Economy, pursuant to Article 115.1 of the Tax Code, the amount of repair expenses deductible from income for each year is limited to 5% of the year-end residual value of machinery and equipment for each category of fixed assets, based on the residual balance value at the end of the previous year.
In this case, in subsequent tax years, the deductible limit for repair expenses is increased by the difference between the actual amount of repair expenses and the amount calculated within the established limit. The amount exceeding the established limit is added to the residual value of the fixed asset (property) at the end of the current tax year.
In response to the inquiry, it was stated that the expenses incurred in the mentioned case are considered repair expenses. Such expenses should be deducted from income within the established limit, while the excess portion should be added to the residual value of the fixed asset.