How are long-term purchases deducted in accounting?

Long-term assets are deducted in accounting differently than normal expenses. Since long-term fixed assets are intended to generate income for the company usually over several years, their costs are also deducted in parts annually as depreciations or deductions.

Declining-balance depreciation is made from long-term assets

The acquisition is deducted annually by 25% at a time using declining-balance depreciation from the current total value of the acquisitions. So, if the total value of assets in the company is €10,000, €2,500 is deducted or depreciated in accounting for all assets during that calendar year. Since declining-balance depreciation can be such a paper-tasting accounting term, we are going to illustrate this directly through an example:

EXAMPLE

If you make a purchase worth 10,000 € (+ VAT 24%), you will immediately benefit from the VAT* and the VAT 0 % amount will be added to your company's assets. We deduct 25% annually from it as a declining-balance depreciation as follows:

  1. year we reduce: 10,000 € * 25% = 2,500 €
  2. year we reduce €7,500 * 25% = €1,875
  3. year we reduce €5,625 * 25% = €1,406.25

Deductions are made until the remaining value of the acquisition is less than €1,200, at which point the final amount is deducted at once.

Always sell the fixed assets through our service via New invoice.

*The VAT deduction of €2,400 is reported all at once according to the purchase date. If your VAT reporting period is a year and you make the purchase on April 3rd, the VAT deduction will be taken into account in February of the following year.

Restrictions in our service

There are a few restrictions in our service regarding long-term assets:

  • Machinery and equipment cannot be reduced by straight-line depreciation, but are reduced by declining-balance depreciation as illustrated in the example.
  • Vehicles, business loans, or leasing equipment cannot be added for the time being.
  • Elevated depreciations cannot be made. Depreciation or reduction is always 25% per year based on the current value of machines and equipment.

Taxation of long-term acquisition in the event of a sale

Long-term acquisitions must always be sold through our service (New → Invoice). The sale is processed using indirect income recognition in taxation. Let's illustrate the tax effect through an example:

EXAMPLE

If you sell the purchase you acquired for 10,000 € (+ VAT 24%) forward the next year for 7,000 € + VAT, the VAT portion of its sale increases the payable VAT according to the payment date and when the selling price is less than the residual expenses, the difference between these is deductible expense in the year of sale. This is how we handle it in the accounting:

  • A depreciation of 2,500 € was made from the purchase in the purchase year, so the value remaining in the sale year is 7,500 €.
  • The product is sold for €7,000, so the difference of €500 is recorded as an expense for the sales year.
  • If the product were to be sold for €8,000 after all, a sales profit of €500 would be recorded for the sales year in the accounts.

Always sell the fixed assets through our service via New Invoice.

The sales VAT is withheld directly from the received payment, which is reported and paid to the tax office according to the due date of the VAT reporting period.

How is long-term assets sold in the service?

You can sell larger purchases added to your accounting in the service by sending an invoice (New → Invoice). Fill in the invoice details as usual and select the property to be sold after the invoice line.

  • The selected property is only visible to the accountant, your customer does not see the selected property or its name from the invoice.
  • For the time being, you can only sell one purchase on one invoice.
  • Agree on the price of the sold property with the customer, the price can be more or less than the purchase price or the remaining value in the accounting.

After your customer has paid the invoice, the accountant will make the final deduction for the purchase from your accounting and no further deductions will be made after this.

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