How to take into account the modernization of a fixed asset when calculating income tax

Documenting

The decision to modernize fixed assets must be formalized by order of the head of the organization, which must indicate:

• reasons for modernization;
• timing of its implementation;
• persons responsible for modernization.

This is explained by the fact that all operations must be confirmed by primary documents (Article 9 of the Law of December 6, 2011 No. 402-FZ).

If an organization does not carry out the modernization of fixed assets using its own resources, it is necessary to conclude a contract agreement with the contractors (Article 702 of the Civil Code of the Russian Federation).

When transferring a fixed asset item to the contractor, issue an act of acceptance and transfer of the fixed asset item for modernization. It can be compiled in any form. If the fixed asset is lost (damaged) by the contractor, the signed act will allow the organization to demand compensation for losses caused (Articles 714 and 15 of the Civil Code of the Russian Federation). In the absence of such an act, it will be difficult to prove the transfer of fixed assets to the contractor.

When transferring a fixed asset for modernization to a special division of the organization (for example, a repair service), you should draw up an invoice for internal movement in form No. OS-2. If the location of the fixed asset does not change during modernization, no transfer documents need to be drawn up.

Upon completion of modernization, an act of acceptance and delivery of modernized fixed assets is drawn up, for example, in form No. OS-3. It is filled out regardless of whether the modernization was carried out economically or by contract. Only in the first case, the organization draws up the form in one copy, and in the second - in two (for itself and for contractors). The act is signed by:

• members of the acceptance committee created in the organization;
• employees responsible for the modernization of fixed assets (or representatives of the contractor);
• employees responsible for the safety of fixed assets after modernization.

After this, the act is approved by the head of the organization and it is transferred to the accountant.

If the contractor carried out the modernization of a building, structure or premises, which relates to construction and installation work, then in addition to the act, for example, in form No. OS-3, an acceptance certificate in form No. KS-2 and a certificate of the cost of work performed and costs in form No. KS-3, approved by Decree of the State Statistics Committee of Russia dated November 11, 1999 No. 100.

Sale of fixed assets

The fact that a fixed asset is fully depreciated does not mean that this asset cannot be used in the organization's activities. After all, the suitability of an object for operation is determined by its technical and economic indicators. And if these indicators do not meet the requirements of one enterprise, they may suit another. Therefore, there is a chance to sell outdated equipment. In this case, the fixed asset item is also subject to deregistration (clause 76 of the Methodological Instructions).

Accounting

The costs of modernizing fixed assets change (increase) their initial cost in accounting (clause 14 of PBU 6/01).

The organization is obliged to keep records of fixed assets according to the degree of their use:

• in operation;
• in stock (reserve);
• on modernization, etc.

This is stated in paragraph 20 of the Methodological Instructions, approved by order of the Ministry of Finance of Russia dated October 13, 2003 No. 91n.

Accounting for fixed assets by degree of use can be carried out with or without reflection on account 01 (03). Thus, during long-term modernization, it is advisable to account for fixed assets in a separate sub-account “Fixed assets for modernization”. This approach is consistent with paragraph 20 of the Methodological Instructions, approved by Order of the Ministry of Finance of Russia dated October 13, 2003 No. 91n.

Debit 01 (03) subaccount “Fixed assets for modernization” Credit 01 (03) subaccount “Fixed assets in operation”

– fixed assets were transferred for modernization.

After completing the upgrade, make the following wiring:

Debit 01 (03) subaccount “Fixed assets in operation” Credit 01 (03) subaccount “Fixed assets for modernization”

– a fixed asset adopted from modernization.

See also about entries in accounting for repairs of fixed assets

Depreciation after modernization

An example of a calculation for an object with an existing residual value:

The machine was retrofitted at an initial cost of RUB 220,000. and SPI 5 years after 3 years of operation in the amount of 50,000 rubles. The machine has been in operation since February 2013, depreciation has been calculated since March 2013. The modernization of the machine began in January 2021 and ended in February 2021 inclusive. Depreciation was accrued in the amount of RUB 132,000. (220,000 / 60 x 36). SPI after retrofitting was increased by 2 years, and depreciation, taking into account the increase in cost and SPI, began in March 2021.

Monthly depreciation amount:

(220,000 – (220,000: 60 months x 36 months) + 50,000) / 48 months = 2875 rubles , i.e. PS is reduced by the amount of accrued depreciation of 132,000 rubles. (220,000 / 60 x 36) and increases by the amount of modernization. The resulting cost of the operating system is divided by 48 months, i.e. by the established SPI.

Based on this calculation algorithm, it is easy to determine deductions for other methods of calculating depreciation.

Accounting for modernization costs

The costs of modernizing fixed assets are taken into account in account 08 “Investments in non-current assets” (clause 42 of the Methodological Instructions approved by Order of the Ministry of Finance of Russia dated October 13, 2003 No. 91n). To ensure the possibility of obtaining data on types of capital investments, it is advisable to open a subaccount “Modernization Expenses” for account 08.

The costs of modernizing fixed assets using economic methods are:

• from the cost of consumables;
• from employee salaries, deductions from it, etc.

Reflect the costs of carrying out modernization on your own by posting:

Debit 08 subaccount “Modernization expenses” Credit 10 (16, 23, 68, 69, 70...)

– the costs of modernization are taken into account.

If an organization is modernizing fixed assets with the involvement of a contractor, then reflect his remuneration by posting:

Debit 08 subaccount “Modernization expenses” Credit 60

– the costs of modernizing fixed assets carried out by contract are taken into account.

Upon completion of the modernization, the costs recorded on account 08 can be included in the initial cost of the fixed asset or taken into account separately on account 01 (03). This is stated in paragraph 2 of paragraph 42 of the Methodological Instructions, approved by order of the Ministry of Finance of Russia dated October 13, 2003 No. 91n.

When including the costs of modernization in the initial cost of a fixed asset, make the following entry:

Debit 01 (03) Credit 08 subaccount “Modernization expenses”

– the initial cost of the fixed asset was increased by the amount of modernization costs.

In this case, reflect the costs of modernization in the primary documents for accounting for fixed assets. For example, in an act in form No. OS-3 and in an inventory card for accounting for fixed assets in form No. OS-6 (No. OS-6a) or in an inventory book in form No. OS-6b (intended for small enterprises). This is stated in the instructions approved by the State Statistics Committee of Russia dated January 21, 2003 No. 7. If it is difficult to reflect information about the modernization carried out in the old card, open a new one instead (clause 40 of the Methodological instructions approved by order of the Ministry of Finance of Russia dated October 13, 2003 No. 91n).

When accounting separately, write off the costs of modernization to a separate subaccount to account 01 (03). For example, subaccount “Expenses for modernization of fixed assets”:

Debit 01 (03) subaccount “Costs on modernization of fixed assets” Credit 08 subaccount “Costs on modernization”

– the costs of modernizing fixed assets are written off to account 01 (03).

In this case, for the amount of expenses incurred, open a separate inventory card, for example, according to form No. OS-6. This is stated in paragraph 2 of paragraph 42 of the Methodological Instructions, approved by order of the Ministry of Finance of Russia dated October 13, 2003 No. 91n.

Upgrade of a depreciated OS

But what if the company modernized a fully depreciated fixed asset? There is no clear answer in the Tax Code. The opinions of the Ministry of Finance and fiscal officials on this issue differ. The first believe that the company should increase the initial cost of the operating system for modernization costs, and then apply the initially determined depreciation rate to the resulting amount (see letters dated September 11, 2018 No. 03-03-06/1/64978, dated July 25, 2016 No. 03 -03-06/1/43374, dated 03/25/2015 No. 03-03-06/1/16234). The latter are confident that the enterprise needs to divide only the cost of modernization into the SPI of the facility (Decision of the Federal Tax Service of Russia dated October 22, 2018 No. SA-4-9 / [email protected] ).

Example 3. Calculation of depreciation for an old facility The company bought a woodworking machine and included it in the 4th Amogroup, setting a useful life of 80 months. The initial cost of the OS is 420,000 rubles. (without VAT). After this facility was completely depreciated, the company modernized it. The cost of work is 130,000 rubles. (without VAT). Depreciation is calculated using the straight-line method. It was decided not to increase the SPI of the object. Amopremium does not apply. With the first approach, the amount of monthly depreciation will be 6,875 rubles. ((RUB 420,000 + RUB 130,000) / 80 months). The accountant will transfer it to expenses for 19 months, in the last of which he will write off the balance in the amount of 6,250 rubles. (RUB 130,000 – (RUB 6,875 x 18 months)). And with the second approach, depreciation will be 1,625 rubles. (RUB 130,000 / 80 months). It will “fall” on tax expenses for exactly 80 months.

As we can see, the Ministry of Finance’s option allows the company to write off the depreciation of the operating system after modernization much faster. If you decide to use it, we recommend that you rely on paragraph 2 of Article 257 of the Tax Code of the Russian Federation. It is this that underlies the conclusion that the calculation in such a situation is made based on the increased initial cost of the asset. Some arbitrators spoke in a similar way (see resolutions of the Ninth Arbitration Court dated 04/06/2016 No. 09AP-9008/2016, Arbitration Court of the Volga-Vyatka District dated 04/08/2015 No. F01-897/2015). True, other judges share the point of view of the auditors, emphasizing: due to the reuse of the original cost of the fixed assets when calculating, the amount of depreciation unreasonably increases (Resolution of the Moscow District Court of Justice dated November 16, 2017 No. F05-16634/2017, upheld by the Decision of the Supreme Court of the Russian Federation dated March 12. 2018 No. 305-KG18-500).

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Alternative approaches to this problem can be found in judicial practice. For example, sometimes judges believe that a company is not obliged to charge depreciation according to the standards determined when putting an operating system into operation. The company has the right to independently establish the SPI of a fully depreciated fixed asset after modernization (Resolution of the AS of the East Siberian District dated June 17, 2016 No. F02-1892/2016). And in another case it was noted: at the time of completion of the reconstruction, the structure was depreciated and the SPI on it had expired. This means that the organization has the right to choose any option for accounting for these expenses, including by calculating depreciation in the manner determined independently under Article 258 of the Tax Code of the Russian Federation (Resolution of the Federal Antimonopoly Service of the Volga District dated February 12, 2013 No. A12-8247/2012). However, keep in mind that the costs of modernization (reconstruction) of a depreciated operating system cannot be included in tax expenses at a time. The auditors are against, and the servants of Themis are entirely on their side (see resolutions of the FAS Moscow District dated 03/28/2013 No. A40-7640/09-115-26, dated 04/23/2012 No. A40-24244/11-75-102, FAS Volgo- Vyatka District dated February 17, 2011 No. A29-6272/2007). They refer to paragraph 5 of Article 270 of the main tax document, emphasizing: due to the direct indication in this norm, the mentioned costs are not subject to inclusion as part of “profitable” expenses by writing them off at a time. It is important that the last two verdicts were supported by the highest arbiters.

On a note

The issue of cost accounting in a situation where the SPI of an object has expired, but the company nevertheless modernized it, is not directly regulated by the Code. But this does not mean that the organization in this case is generally deprived of the right to reflect such expenses if they meet the criteria from Article 252 of the Tax Code of the Russian Federation. Since, as a result of these works, the property continues to remain a fixed asset, it is subject to further depreciation (Resolution of the Volga-Vyatka District Administration of 04/08/2015 No. F01-897/2015).

Depreciation during modernization

When carrying out modernization with a period of no more than 12 months, calculate depreciation on the fixed asset. If the modernization of a fixed asset takes more than 12 months, then suspend depreciation on it. In this case, resume depreciation after completion of the modernization. This procedure is established in paragraph 23 of PBU 6/01 and paragraph 63 of the Methodological Instructions, approved by Order of the Ministry of Finance of Russia dated October 13, 2003 No. 91n.

Situation: at what point in accounting should you stop and then resume depreciation on a fixed asset transferred for modernization for a period of more than 12 months?

For accounting purposes, the specific moment of termination and resumption of depreciation on fixed assets transferred for modernization for a period of more than 12 months is not established by law. Therefore, the month from which the accrual of depreciation for accounting purposes for such fixed assets stops and resumes must be established independently by the organization. In this case, possible options could be:

• depreciation is suspended from the 1st day of the month in which the fixed asset was transferred for modernization. And it resumes from the 1st day of the month in which the modernization was completed;
• depreciation is suspended from the 1st day of the month following the month in which the fixed asset was transferred for modernization. And it resumes on the 1st day of the month following the month in which the modernization was completed.

The chosen option for suspending and resuming depreciation for accounting purposes for fixed assets modernized for a period of more than 12 months should be reflected in the organization’s accounting policy for accounting purposes.

Advice: in your accounting policy for accounting purposes, establish the same procedure for stopping and resuming depreciation on fixed assets transferred for modernization for a period of more than 12 months, as in tax accounting.

In this case, temporary differences will not arise in the organization’s accounting, leading to the formation of a deferred tax liability.

Depreciation after modernization

An example of calculating depreciation for a fully depreciated object

In 2021, the company completed the modernization of the production line belonging to the 4th depreciation group with SPI from 5 to 7 years. Substation lines upon commissioning (January 2010) – 500,000 rubles. The SPI was set at 80 months. Depreciation rate (RA) – 1.25% (1/80 month). Depreciation was calculated from February 2010 to September 2021, and at the end of 2021, when it was decided to reconstruct the line, the facility was fully depreciated. In March 2021, the corresponding work was completed, the amount of reconstruction without VAT amounted to 350,000 rubles. From April 2021, the company begins to write off modernization costs, using the mechanism for calculating depreciation as follows:

C after modernization is 850,000 rubles. (500,000 + 350,000). The NA should be the same as at the time the line was entered, i.e. 1.25%. Consequently, the amount of monthly depreciation will be 10,625 rubles. (RUB 850,000 x 1.25/100). The costs of the completed modernization should be written off over 32 months at 10,625 rubles. (340,000 rubles), in the 33rd month the amount of depreciation will be 10,000 rubles.

Operating lifespan after upgrading

Modernization can lead to an increase in the useful life of a fixed asset. In this case, for accounting purposes, the remaining useful life of the modernized fixed asset must be revised (clause 20 of PBU 6/01, clause 60 of the Methodological Instructions approved by Order of the Ministry of Finance of Russia dated October 13, 2003 No. 91n). This is what the acceptance committee does when accepting a fixed asset from modernization:

• based on the period during which it is planned to use the fixed asset after modernization for management needs, for the production of products (performance of work, provision of services) and other generation of income;
• based on the period after which the fixed asset is expected to be unsuitable for further use (i.e., physically worn out). This takes into account the mode (number of shifts) and negative operating conditions of the fixed asset, as well as the system (frequency) of repairs.

This follows from paragraph 20 of PBU 6/01.

The acceptance committee may indicate that the modernization did not lead to an increase in useful life in the act in form No. OS-3.

The results of reviewing the useful life in connection with the modernization of a fixed asset are formalized by order of the manager.

Situation: how to calculate depreciation in accounting after modernizing a fixed asset?

The procedure for calculating depreciation after modernization of a fixed asset is not defined by accounting legislation. Paragraph 60 of the Methodological Instructions, approved by Order of the Ministry of Finance of Russia dated October 13, 2003 No. 91n, provides only an example of calculating depreciation charges using the linear method. So, according to the example, with the linear method, the annual amount of depreciation of a fixed asset after modernization is determined in the following order.

Calculate the annual depreciation rate of fixed assets after modernization using the formula:

Then calculate the annual depreciation amount. To do this, use the formula:

The amount of depreciation that must be accrued monthly is 1/12 of the annual amount (paragraph 5, clause 19 of PBU 6/01).

An organization has the right to use this method of calculation even if, as a result of modernization, the useful life of a fixed asset has not changed (remained the same). This is explained by the fact that paragraph 60 of the Methodological Instructions, approved by Order of the Ministry of Finance of Russia dated October 13, 2003 No. 91n, does not contain conditions on the mandatory increase in useful life as a result of modernization. This means that an organization can calculate depreciation based on the residual value of a fixed asset (taking into account its increase by the amount of modernization costs) and its remaining useful life, regardless of whether this period was extended after modernization or not. Similar explanations are given in the letter of the Ministry of Finance of Russia dated June 23, 2004 No. 07-02-14/144.

If an organization uses other methods of calculating depreciation (the reducing balance method, the method of writing off value by the sum of the numbers of years of useful life, the method of writing off value in proportion to the volume of production (work)), then the annual amount of depreciation charges can be determined in the following order:

• similar to the order given in the example for the linear method;

• independently developed by the organization.

The used option for calculating depreciation on fixed assets after modernization should be fixed in the accounting policy of the organization for accounting purposes.

An example of reflecting depreciation on a fixed asset in accounting after its modernization

Alpha LLC repairs medical equipment. In April 2015, the organization modernized its production equipment, which was put into operation in July 2012.

The initial cost of the equipment is 300,000 rubles. The useful life according to accounting data is 10 years. The method of calculating depreciation is linear. As a result of the modernization, the useful life of the facility increased by 1 year.

Before the modernization of the fixed asset, the annual depreciation rate was 10 percent ((1: 10 years) × 100%). The annual depreciation amount was 30,000 rubles. (RUB 300,000 × 10%). The monthly depreciation amount was 2,500 rubles. (RUB 30,000: 12 months).

RUB 59,000 was spent on equipment modernization. The modernization lasted less than 12 months, so depreciation was not suspended. At the time of completion of the modernization, the actual service life of the equipment was 33 months. Its residual value according to accounting data is equal to: 300,000 rubles. – (33 months × 2500 rub./month) = 217,500 rub.

After modernization, the useful life of the fixed asset was increased by 1 year and amounted to 8.25 years (7.25 + 1).

The annual depreciation rate for equipment after modernization was 12.1212 percent ((1: 8.25 years) × 100%).

The annual amount of depreciation is 33,515 rubles. ((RUB 217,500 + RUB 59,000) × 12.1212%).

The monthly depreciation amount is RUB 2,793. (RUB 33,515: 12 months).

Modernization and reconstruction of fixed assets

Chapter from the book “Annual Report edited by Vasilyev Yu.A -2006”,

Accounting

From January 1, 2006, the cost of work on modernization and reconstruction of the operating system is taken into account in a new way. So, if before changes were made to the accounting standard for accounting for fixed assets, the organization, at its discretion, increased the initial cost by the amount of improvements, then after the specified date it does not have such a right. Clause 27 of PBU 6/01 establishes that the costs of modernization and reconstruction of an OS facility after their completion increase the initial cost of such an object if, as a result of modernization and reconstruction, the initially adopted standard performance indicators improve (increase) (useful life, power, quality of use and etc.) OS object.

Clause 20 of PBU 6/01 determines that the useful life (SPI) of a modernized (reconstructed) fixed asset is either revised or not revised depending on whether the facility’s performance indicators improve or not. If the indicators have improved, then a revision of the SPI of the asset is mandatory. However, this does not mean that the organization is obliged to increase this period. As a result of the analysis (revision), the SPI of the modernized (reconstructed) facility may not change, for example, if the purpose of the reconstruction was to significantly increase the capacity of the facility or improve the quality of its use.