Warranty repair concept
Warranty repairs (warranty service) can be carried out by:
- manufacturers of products (works, services) (clause 6 of article 5 of the Law of February 7, 1992 No. 2300-1);
- trade organizations (including importers) (clause 7 of article 5 of the Law of February 7, 1992 No. 2300-1).
Warranty repairs (warranty service) are subject to goods (results of work) for which a warranty period has been established. The start date of the warranty period is the date of transfer of goods (results of work performed) to the buyer (customer). That is, the date of registration of shipping documents or the acceptance certificate for work performed. This procedure follows from the provisions of Articles 470, 471 of the Civil Code of the Russian Federation, paragraph 2 of Article 19 of the Law of February 7, 1991 No. 2300-1.
Manufacturers and trade organizations can carry out warranty repairs of products (warranty service):
- on your own;
- by third party organizations (specialized service centers).
Equipment replacement
Unfortunately, deficiencies identified in fixed assets cannot always be eliminated through repairs. In this case, the seller is obliged to replace the product with one that is serviceable and suitable for use. For tax purposes, this option is much more complicated, since there are no specific explanations on this matter in the Tax Code.
Income tax
Of interest here is the letter of the Ministry of Finance of Russia dated June 14, 2016 No. 03-03-06/3/34278. In it, financiers came to the following conclusion. If a defective fixed asset is replaced under a guarantee with a serviceable one, this operation is not recognized as a separate transaction, but takes place within the framework of the original supply agreement. Therefore, there are no errors or distortions in the company’s tax accounting, and no income or expenses arise.
A similar position is contained in the letter of the Ministry of Finance of Russia dated 06/03/2015 No. 03-07-11/31971. At the same time, in these clarifications, specialists from the financial department indicated that in the situation under consideration, the company should not restore as part of its income the depreciation and depreciation bonus previously accrued on the defective fixed asset.
Thus, after replacing a fixed asset, depreciation should be calculated in the same manner. After all, the free replacement of a defective object with a functional one did not change the amount of the contract, which previously participated in the formation of the initial cost of the object. Accordingly, the amount based on which depreciation is calculated does not change.
Example 1
In January 2021, Almaz LLC purchased equipment worth RUB 512,000. (including VAT - 78,102 rubles). The object was assigned to the third depreciation group - property with a useful life of more than three years up to five years inclusive. The company has set a service life of 40 months.
The initial cost of the fixed asset was 433,898 rubles. (RUB 512,000 – RUB 78,102).
The depreciation bonus for this group is applied in the amount of 30%. It amounted to 130,169 rubles. (RUB 433,898 x 30%). That is, the cost from which depreciation itself is calculated is 303,729 rubles. (RUB 433,898 – RUB 130,169).
The monthly depreciation amount was RUB 7,593. (RUB 303,729: 40 months).
The seller of the equipment has established a warranty period (three years), during which he undertakes, in the event of a defect, to replace the item or repair it at his own expense.
In July 2021, a defect beyond repair was identified and the asset was returned to the seller. The seller replaced the equipment that same month.
Until the moment when the defect was discovered, depreciation on the equipment was accrued for six months, and the amount of accrued depreciation was 45,558 rubles. (RUB 7,593/month x 6 months). The residual value at the time of replacement of the object was 258,171 rubles. (RUB 433,898 – RUB 130,169 – RUB 45,558).
In our opinion, after replacing an object, the company should continue to calculate depreciation for 34 months. based on the value of 7593 rubles. per month.
In practice, there are situations when the cost of the replaced object turns out to be more or less than the one received.
There is an opinion that if the cost of the equipment received in exchange is higher, then the purchasing company receives income in the form of the difference in price, that is, it has non-operating income in the form of gratuitous receipt.
We fundamentally disagree with this opinion. Replacement of fixed assets is carried out within the framework of warranty obligations under the supply agreement. Therefore, there can be no talk of any gratuitousness here. At the same time, the cost of the contract is clearly defined. And if, in order to fulfill its obligations, the seller had to supply equipment at a cost greater than he expected, this is the problem of the seller, not the buyer.
VAT
Unlike income tax, things are completely different with VAT. There are no problems here.
The fact is that specialists from the Russian Ministry of Finance believe that when returning a fixed asset previously registered by the buyer, VAT should be calculated (letter dated 06/03/2015 No. 03-07-11/31971). This approach is justified by the fact that, according to clause 3 of the Rules for maintaining the sales book, approved by Decree of the Government of the Russian Federation of December 26, 2011 No. 1137, invoices issued upon the return of goods accepted for registration by the taxpayer are subject to registration in the sales book.
Exactly the same point of view was expressed by financiers in letter dated 04/07/2015 No. 03-07-09/19392 regarding the deduction of VAT in the event of the return of defective goods. Specialists from the Russian Ministry of Finance indicated that in accordance with paragraph 5 of Art. 171 of the Tax Code of the Russian Federation, the amounts of VAT presented by the seller to the buyer and paid by the seller to the budget when selling goods are subject to deduction in the event of the return of these goods (including during the warranty period) to the seller or refusal of them. And in paragraph 1 of Art. 172 of the Tax Code of the Russian Federation establishes that the indicated deductions of VAT amounts are made on the basis of invoices.
Thus, for returned goods previously registered by the buyer, the corresponding invoice is issued to the seller of these goods by the buyer, who is a VAT payer. Such an invoice received by the seller of goods from the buyer is a document that serves as the basis for deducting VAT from the seller in the manner established in Art. 172 of the Tax Code of the Russian Federation.
That is, it turns out that when the buyer returns a defective product to the seller, he must issue an invoice with the allocated amount of VAT and register it in the sales book. And then, when the seller replaces the defective item with a new one, the buyer will again deduct VAT.
In our opinion, this point of view is incorrect. The fact is that in their explanations, specialists from the Russian Ministry of Finance talk about the return of goods. And if you look at Art. 502 and 503 of the Civil Code of the Russian Federation, it is clear that returning goods and replacing goods are two completely different operations.
When replacing a product, there is no cash flow - simply the faulty product is replaced with a working one. An object used in transactions subject to VAT, with the acquisition of which the buyer has the right to receive a deduction, does not disappear anywhere.
But when returning the goods, the seller has an obligation to return the money to the buyer. In this case, the object of purchase itself disappears, which the buyer could use in transactions subject to VAT. This is where the need to restore VAT really arises.
Based on this, we conclude that if a fixed asset is replaced, no invoices need to be issued. There is also no need to restore input VAT and then submit it for deduction again.
Property tax
The object of property tax for Russian companies is movable and immovable property recorded on the balance sheet as fixed assets in the manner established for accounting (clause 1 of Article 374 of the Tax Code of the Russian Federation).
The replacement of a defective fixed asset is not reflected in the accounting entries. The object of accounting is not a specific property, but an asset. This is stated in paragraph 2 of Art. 5 of the Federal Law of December 6, 2011 No. 402-FZ “On Accounting”. What's the difference?
A fixed asset, based on clause 8 of PBU 6/01 “Accounting for fixed assets,” is an asset that is recognized in the financial statements in the amount of costs incurred to acquire the property.
We incurred costs and an asset was formed. If a specific machine was replaced under the terms of the warranty agreement with the same one, performing exactly the same functions, and no additional costs were incurred, then our asset has not changed.
When receiving new equipment, you need to enter corrected information about it into the facility’s inventory card and issue a transfer and acceptance certificate for the fixed asset. But from the point of view of reflecting data on accounting accounts, absolutely nothing has changed. And since the balance sheet reflects the final data of the accounting accounts, the replacement of equipment we are considering will not affect the payment of property tax in any way.
Warranty repair costs
The list of costs associated with warranty repairs is not defined by law. Depending on how the organization carries out warranty repairs (in-house or with the assistance of service centers) and on what types of work need to be performed during repairs, the costs of warranty repairs may include:
- costs of eliminating product defects (expenses for remuneration of employees who are engaged in repairs; purchase of components (spare parts) used to eliminate defects);
- costs of delivering goods from the buyer to the seller (manufacturer) for repairs;
- costs of delivering goods from the seller (manufacturer) to the buyer after repair;
- costs of conducting an examination of goods, identifying the causes of product defects (costs of remuneration of employees who conduct the examination);
- costs of paying for repair services to a third party.
Accounting: creation and use of reserves
If an organization creates a reserve for warranty repairs in accounting, then reflect the deductions to the reserve using the following entries:
Debit 20 (23, 44) Credit 96 subaccount “Reserve for warranty repairs”
– a reserve has been accrued for warranty repairs of goods (warranty service for work performed, services provided).
Write off the costs associated with warranty repairs as a debit to account 96 in correspondence with the cost account. For more information about this, see How to record the use of the reserve for warranty repairs (warranty service).
Accounting: cost reflection
If the organization does not create a reserve, reflect the costs of warranty repairs as they occur. Depending on the type of expenses, write them off using the following entries:
Debit 20 (23, 44) Credit 70
– salaries were accrued to employees involved in warranty repairs;
Debit 20 (23, 44) Credit 69
– contributions for compulsory pension (social, medical) insurance and insurance against accidents and occupational diseases are charged on the salaries of employees engaged in warranty repairs;
Debit 20 (23, 44) Credit 10
– spare parts (components) are written off for warranty repairs.
Write off spare parts and components using one of the selected methods for writing off material costs.
Debit 20 (23, 44) Credit 70 (10, 02, 68, 69, 60…)
– the costs of delivering the goods from the buyer to the place of warranty repair and back are written off.
At the end of the reporting period (month), write off the amount of costs for warranty repairs as a debit to account 90-2:
Debit 90-2 Credit 20 (23, 44)
– costs for warranty repairs are written off.
Warranty repairs involving third parties are carried out on the basis of a contract with a specialized company (service center).
Relations between the customer and the contractor are regulated by Chapter 37 of the Civil Code of the Russian Federation. The procedure for accounting for costs associated with warranty repairs in this case depends on the terms of the contract. If the contract stipulates that the cost of the work includes the cost of spare parts (components), then in accounting, reflect the costs under the contract by posting:
Debit 20 (23, 44) Credit 60
– costs for the services of the service center are reflected.
Make this entry when signing the work completion certificate (clause 18 of PBU 10/99).
Repair under warranty
From a tax point of view, this is the simplest operation and should not cause much trouble for accountants.
Income tax
If a company transfers a fixed asset for repair under warranty, it does not incur any expenses. Therefore, there is nothing to reflect in tax accounting.
At the same time, the organization has every right to continue to charge depreciation on such an object. After all, all cases when a fixed asset must be excluded from depreciable property are listed in paragraph 3 of Art. 256 Tax Code of the Russian Federation. Repair of fixed assets is not listed there.
Confirmation of this conclusion can be found, for example, in letters from the Ministry of Finance of Russia dated January 25, 2011 No. 03-03-06/1/24 and dated February 27, 2009 No. 03-03-06/1/101. In them, financiers indicated that if the property is not used to generate income only temporarily (for example, during a period of downtime due to production needs or for technological or economic reasons), depreciation does not stop. Consequently, depreciation amounts are taken into account as expenses when calculating income tax.
VAT
Regarding VAT, accountants have the following question: is it necessary to issue invoices when transferring goods from the buyer to the seller on the basis of complaint reports to eliminate a defect?
The answer to this question is contained in the letter of the Ministry of Finance of Russia dated July 14, 2015 No. 03-07-09/40364. In it, financiers quite rightly came to the conclusion that there can be no talk of any VAT calculation and issuing invoices in such a situation. Let us present the department's reasoning.
In accordance with sub. 1 clause 1 art. 146 of the Tax Code of the Russian Federation, transactions involving the sale of goods (work, services) are recognized as subject to VAT. For tax purposes, the sale of goods is recognized as the transfer of ownership of them on a reimbursable basis, and in cases provided for by the Tax Code of the Russian Federation, the transfer of ownership of goods on a gratuitous basis (clause 1 of Article 39 of the Tax Code of the Russian Federation).
In paragraph 3 of Art. 168 of the Tax Code of the Russian Federation states that the taxpayer is obliged to issue an invoice when selling goods. But when the buyer transfers goods to the seller on the basis of claims to eliminate a defect, the ownership of the specified goods does not pass from the buyer to the seller. Consequently, such a transfer is not a sale of goods, and, accordingly, the object of VAT taxation does not arise in this case. Therefore, in this situation, the buyer should not issue invoices.
Accounting
Based on clause 23 of PBU 6/01 “Accounting for Fixed Assets,” the transfer of a fixed asset for repair is not its disposal and does not entail the suspension of depreciation if the repair lasts no more than 12 months.
We can only recommend opening a separate sub-account “Fixed assets in repair” to account 01, since control over the physical location of fixed assets is also the task of an accountant. This is stated in paragraph 19 of the Methodological Instructions for accounting for fixed assets, approved by Order of the Ministry of Finance of Russia dated October 13, 2003 No. 91n (hereinafter referred to as the Methodological Instructions).
Analytical accounting in relation to fixed assets under repair is also necessary by virtue of clause 20 of the Methodological Instructions. According to this norm, fixed assets are divided according to the degree of use into:
— in operation;
— in stock (reserve);
- under repair;
— at the stage of completion, additional equipment, reconstruction, modernization and partial liquidation;
- on conservation.
And paragraph 68 of the Methodological Instructions states that in order to organize control over the timely receipt of fixed assets from repairs, it is recommended that inventory cards for designated objects in the file cabinet be rearranged into the “Fixed assets in repair” group.
Please note: based on Art. 9 of the Federal Law of December 6, 2011 No. 402-FZ “On Accounting”, each fact of economic life is subject to registration as a primary accounting document, which is subject to certain requirements. In turn, a fact of economic life is understood as a transaction, event, operation that has or is capable of influencing the financial position of an economic entity, the financial result of its activities or cash flow.
But in this case, it turns out that there is no fact of economic life. After all, warranty repairs are free, which means they cannot affect the financial position of an economic entity, the financial results of its activities or cash flow. And this is not generating income, since the free nature of such repairs is immediately implied in the purchase price of the fixed asset itself.
However, a document on the transfer of an object to a third party must be drawn up to determine the persons who are financially responsible for it.
Replacement of spare parts and components
The terms of the contract may stipulate that the customer organization pays only for warranty repairs (without taking into account the cost of spare parts). In this case, if during the repair there is a need to replace any parts (components), the customer organization is obliged to provide them at its own expense (Articles 703, 704, 713 of the Civil Code of the Russian Federation).
As a rule, the customer organization transfers spare parts and components for warranty repairs on a toll basis (clause 156 of the Methodological Instructions, approved by Order of the Ministry of Finance of Russia dated December 28, 2001 No. 119n). Since in this case the ownership of the transferred property does not pass to the performer of the work (clause 1 of Article 220 of the Civil Code of the Russian Federation), take it into account in the same manner as customer-supplied materials. After the repair, the contractor must provide the customer with a report on the use of the received spare parts (Clause 1, Article 713 of the Civil Code of the Russian Federation). If not all spare parts were used during the repair process, the contractor must return them using the invoice. These documents are the basis for writing off materials used for warranty repairs.
Situation: how to reflect in accounting the receipt of spare parts intended for warranty repairs? Spare parts were received from a foreign manufacturer of products free of charge within the warranty period of the product.
Reflect them on off-balance sheet account 003 “Materials accepted for processing.”
If the manufacturer has established a warranty period for the product, the obligation to eliminate defects lies with him (the exception is the case when the fact of damage to the product by the consumer is proven) (Article 476 of the Civil Code of the Russian Federation, paragraph 2 of paragraph 6 of Article 18 of the Law of the Russian Federation of February 7, 1992 No. 2300-1).
In order to ensure the possibility of using the product during its service life, the manufacturer undertakes to:
- carry out repairs and maintenance of products;
- supply spare parts to trade and repair organizations during the service life of the product (and in the absence of such a period, for ten years from the date of transfer of the product to the consumer).
One of the ways to fulfill the warranty obligation is the free replacement of defective spare parts (both with and without repair work). As a rule, the consumer makes a request to eliminate the defects of the product to the direct seller. In turn, the seller in this case has the right to address these demands to the manufacturer. And the manufacturer can either compensate all the seller’s expenses for warranty repairs (including the cost of spare parts purchased by him), or carry out the repairs himself or provide the seller with spare parts free of charge for further transfer to the consumer.
This follows from Article 469, paragraph 2 of Article 470, Article 475, paragraph 3 of Article 477 of the Civil Code of the Russian Federation and Article 6 of Law No. 2300-1 of February 7, 1992.
In the situation under consideration, the organization receives spare parts for warranty repairs of sold products free of charge for free transfer to the consumer.
Spare parts received for warranty repairs are the property of the manufacturer (Article 713 of the Civil Code of the Russian Federation). Therefore, in accounting, reflect them on off-balance sheet account 003 “Materials accepted for processing”:
Debit 003
– spare parts provided by the manufacturer for further transfer to the consumer are accepted for accounting.
Please accept spare parts for accounting at the price indicated in the accompanying documents (invoice, delivery note) received from the manufacturer. The basis for accepting spare parts for accounting are primary accounting documents confirming the receipt of spare parts (act of acceptance and transfer of spare parts, agreement with the manufacturer, receipt order) (Part 1 of Article 9 of the Law of December 6, 2011 No. 402-FZ).
When transferring spare parts to the consumer, make the following wiring:
Credit 003
– the cost of spare parts transferred to the buyer for replacement is written off.
Write off spare parts based on the spare parts acceptance certificate and the spare parts consumption report.
This procedure follows from the Instructions for the chart of accounts, as well as the provisions of Article 713 of the Civil Code of the Russian Federation.
When receiving spare parts from a manufacturer, an organization may incur costs, for example, to pay VAT and customs duties (duties), if the manufacturer is a foreign organization.
The amount of customs duties (duties) paid at customs for spare parts received for warranty repairs should be included as part of other expenses (clause 11 of PBU 10/99). Make the following entry in accounting:
Debit 91-2 Credit 76 subaccount “Calculations for customs duties and fees”
– the amount of customs duties (duties) paid at customs when importing spare parts is taken into account as part of other expenses.
Reflect the VAT paid at customs by posting:
Debit 19 Credit 68 subaccount “VAT calculations”
– VAT payable at customs when importing spare parts is reflected.
Quality guarantee from the point of view of the Civil Code of the Russian Federation
As a general rule, the seller is obliged to transfer to the buyer goods, the quality of which corresponds to the purchase and sale agreement (clause 1 of Article 469 of the Civil Code of the Russian Federation). If the purchase and sale agreement does not contain conditions on the quality of the goods, then the seller must transfer to the buyer the goods suitable for use for certain purposes (clause 2 of Article 469 of the Civil Code of the Russian Federation).
The purchase and sale agreement may provide for the seller to provide a guarantee of the quality of the goods. In this case, the seller is obliged to transfer to the buyer a product that will meet the requirements for its quality within a certain period. Such a warranty period is established in the contract (clause 2 of article 470 of the Civil Code of the Russian Federation).
Please note: the quality guarantee of the product also applies to all its constituent parts, unless otherwise provided by the purchase and sale agreement (clause 3 of Article 470 of the Civil Code of the Russian Federation).
As a rule, the warranty period begins to run from the moment the goods are transferred to the buyer, unless otherwise provided by the purchase and sale agreement (clause 1 of Article 471 of the Civil Code of the Russian Federation). But if the buyer is deprived of the opportunity to use the goods in respect of which the warranty period is established by the contract, due to circumstances depending on the seller, then the warranty period does not run until the relevant circumstances are eliminated by the seller. In this case, the warranty period can be extended by the time during which the product could not be used due to defects found in it, provided that the seller is notified of the defects of the product (Clause 2 of Article 471 of the Civil Code of the Russian Federation).
If, due to the discovery by the buyer of a defect during the warranty period, the seller supplies a new product, then a warranty period of the same duration is established for it as for the replaced one (Clause 4 of Article 471 of the Civil Code of the Russian Federation).
It should be said that the warranty for the product does not terminate upon termination of the contract, unless the parties agree otherwise. This conclusion was reached by the Plenum of the Supreme Arbitration Court of the Russian Federation in Resolution No. 35 dated June 6, 2014. But the buyer is deprived of the possibility of warranty service if, for example:
— did not carry out technical maintenance of the goods (resolution of the Moscow District Court of August 12, 2016 No. F05-11491/2016 in case No. A40-90481/2014);
— independently repaired (dismantled) the goods (resolution of the Autonomous Court of the East Siberian District dated April 27, 2015 No. F02-1345/2015 in case No. A10-3000/2013).
So, if a quality guarantee was provided for the product, then if a defect is detected during the warranty period, the buyer can either repair the item free of charge or replace it with a serviceable item. The option is good, but buyers have many questions about how to reflect these transactions in accounting.
