SUMMARY:
Depreciation. Useful life and scrap value. Accounting depreciation (Depreciation methods, straight line, units produced, sum of the digits of the years, double decreasing balance, depreciation in fractional periods, adjustment entries to record depreciation, presentation in the balance sheet, rules applicable to depreciation).
accounting-and-tax-depreciationTax depreciation (Income Tax Law, deductions in irregular years, option to apply smaller percentages to those authorized, start of deduction, update of deduction).
INTRODUCTION
As we all know, when paying for something, whatever it is, that has never been used, you must spend a greater amount of money than if you were buying an item of those that they commonly call "second-hand".
This is because, like all things in this world, material goods also wear out and in doing so they no longer function properly as they did in the beginning. This fact causes its value to deteriorate in the same way. So at the end of its useful life, that is, when we want to get rid of it, what someone else would pay us to acquire it would be only a percentage of what we pay.
However, that amount that is going to be received is almost always calculated according to what each owner assumes that their property must be worth at that moment, without stopping to think if they are actually asking for the correct amount or are in error.
For this reason there is accounting depreciation, which helps us find that value through certain methods. These provide us with accurate results and take into account everything necessary so that the quantity at which we are going to sell the property is as indicated.
Also, when taxes are going to be paid for the investments that have been made, we may pay less, however, we must know something about tax depreciation, which tells us what we can stop paying and what not.
DEPRECIATION
Before starting to talk about the issues at hand, it is important to present a definition about the main concept.
Depreciation is a rational and systematic recognition of the cost of goods, distributed during their estimated useful life, in order to obtain the necessary resources for the replacement of the goods, so that the operating or productive capacity of the public entity is preserved. Its distribution must be made using the criteria of time and productivity, by one of the following methods: straight line, sum of the years' digits, decreasing balances, number of units produced or number of hours of operation, or any other of recognized value technical, which must be disclosed in the notes to the financial statements.
USEFUL LIFE AND WASTE VALUE
It is often difficult to estimate the useful life and scrap or recovery value of a fixed asset, but it needs to be determined before you can calculate depreciation expense for a period. Generally, a company estimates its useful life based on previous experience with similar company-owned assets. The tax authorities and the different commercial groups establish guidelines to arrive at acceptable estimates.
ACCOUNTING DEPRECIATION
With the exception of land, most fixed assets have a limited useful life due to the wear and tear resulting from use, the physical deterioration caused by earthquakes, fires and other accidents, the loss of comparative utility with respect to new equipment and processes, or the exhaustion of its content. The decrease in value, caused by the aforementioned factors, is charged to an expense called depreciation.
Depreciation indicates the amount of cost or expense, which corresponds to each fiscal period. The total cost of the asset is distributed throughout its useful life by allocating a part of the cost of the asset to each fiscal period.
The computation of the depreciation of a period must be consistent with the criteria used for the depreciated asset, that is, if it is incorporated into the cost and is never revalued, the depreciation is calculated on the original cost of acquisition, while if there were revaluations, must be computed on the revalued values. This calculation must be performed each time a good or improvement is incorporated in order to establish the new amount to depreciate.
On the other hand, the final residual value or recoverable value must be considered, which will be the value of the property when its employment is discontinued and is calculated by deducting from the sale price the expenses necessary for its sale, including the costs of removal and dismantling, if these were necessary.
| Original amount | + | Revaluations made | - | Recoverable value | = | Amount to depreciate |
To calculate the depreciation attributable to each period, it must be known:
- Cost of the good, including the costs necessary for its acquisition. Useful life of the asset that must be technically estimated based on the characteristics of the good, the use it will give, the entity's maintenance policy, the existence of technological markets that cause its obsolescence, etc. Final residual value. Depreciation method to be used to distribute its cost throughout the accounting periods.
Depreciation methods
Various methods have been developed to estimate the depreciation expense of tangible fixed assets. The four most widely used depreciation methods are:
- The one with the straight line The one with units produced The one with the sum of the digits of the years The one with the double decreasing balance.
The depreciation of one year varies according to the selected method, but the total depreciation throughout the useful life of the asset cannot go beyond the recovery value. Some depreciation methods result in higher expense in the first years of the asset's life, which affects the period's net profits. Therefore, the accountant must carefully evaluate all factors, before selecting a method of depreciating fixed assets.
DEPRECIATION METHODS
| METHOD | DEPRECIATION CHARGE |
| Straight line | Same all years of shelf life |
| Units produced | According to production |
| Sum of the digits of the years | Older the first years |
| Double declining balance | Older the first years |
Straight line method
The straight-line depreciation method assumes that the asset wears equally during each accounting period. This method is frequently used because it is simple and easy to calculate. The straight-line method is based on the number of years of the asset's useful life, according to the formula:
| Cost - scrap value | = | depreciation amount for each year of the asset's life or annual depreciation expense |
| Years of shelf life |
The annual depreciation for a truck at the cost of $ 33,000,000 with an estimated useful life of five years and a recovery value of $ 3,000,000, using the straight-line method is:
| $ 33,000,000 - $ 3,000,000 | = | Annual depreciation expense of $ 6,000,000 |
| 5 years |
or
| 100% | = | 20% x $ 30,000,000 ($ 33,000,000 - $ 3,000,000) = $ 6,000,000 |
| 5 years |
Units produced method
The units produced method of depreciating an asset is based on the total number of units that will be used, or the units that the asset can produce, or the number of hours the asset will work, or the number of kilometers it will travel accordingly with the formula.
| Cost - scrap value | = | Depreciation cost of one unit hour or kilometer | x | Number of units hours or kilometers used during the period |
| Units of use, hours or kilometers |
| = | Depreciation expense for the period |
For example, suppose the truck used in the previous example will cover approximately 75,000 kilometers. The cost per kilometer is:
| $ 33,000,000 - $ 3,000,000 | = | $ 400 depreciation cost per kilometer |
| 75,000 kilometers |
To determine the annual depreciation expense, the cost per kilometer ($ 400) is multiplied by the number of kilometers it will travel in that period. The annual depreciation of the truck over five years is calculated as shown in the following table:
| Year | Cost per kilometer | X | Kilometres | Annual depreciation |
| one | $ 400 | 20,000 | $ 8,000,000 | |
| two | 400 | 25,000 | 10,000,000 | |
| 3 | 400 | 10,000 | 4,000,000 | |
| 4 | 400 | 15,000 | 6,000,000 | |
| 5 | 400 | 5,000 | 2,000,000 | |
| 75,000 | $ 30,000,000 |
The straight-line and unit-produced depreciation methods distribute depreciation expense fairly. With the straight-line method, the amount of depreciation is the same for each fiscal period. With the units produced method, the depreciation cost is the same for each unit produced, how many hours are spent or the kilometers traveled, during the fiscal period.
Sum of years digit method
In the depreciation method of the sum of the digits of the years, the scrap value of the cost of the asset is reduced. The result is multiplied by a fraction, whose numerator represents the number of years of useful life that the asset still has and the denominator that is the total of the digits for the number of years of the asset's life. Using the truck as an example, the calculation of depreciation, by the method of the sum of the digits of the years, is carried out as follows:
Year 1 + year 2 + year 3 + year 4 + year 5 = 15 (denominator)
A simple formula can be used to obtain the denominator.
| Year + (year x year) | = | denominator |
| two |
| 5 + (5 x 5) | = | 30 | = | 15 (denominator) |
| two | two |
Depreciation for year 1 can be calculated using the following figures:
| cost | - | Scrap value | = | Sum to depreciate |
| $ 33,000,000 | - | $ 3,000,000 | = | $ 30,000,000 |
| Sum to depreciate | x | Years of life pending
Sum of years |
= | Depreciation of year 1 |
| $ 30,000,000 | x | 5/15 | = | $ 10,000,000 |
The following table shows the calculation of the annual expense for depreciation, according to the method of the sum of the digits of the years, for the five years of useful life of the truck of the previous examples.
| METHOD: SUM OF THE DIGITS OF THE YEARS | ||||
| Year | Fraction | X | Sum to depreciate | Annual depreciation |
| one | 5/15 | $ 30,000,000 | $ 10,000,000 | |
| two | 4/15 | 30,000,000 | 8,000,000 | |
| 3 | 3/15 | 30,000,000 | 6,000,000 | |
| 4 | 2/15 | 30,000,000 | 4,000,000 | |
| 5 | 1/15 | 30,000,000 | 2,000,000 | |
| 15/15 | $ 30,000,000 |
The sum of years digit method results in a higher depreciation amount in the first year and a decreasing amount in the remaining years of the asset's remaining useful life. This method is based on the theory that assets depreciate more in their first years of life.
Double-declining balance method
A longer and more descriptive name for the double-declining balance method would be double-declining balance, or twice the rate of the straight line. In this method, the scrap or recovery value is not deducted from the cost of the asset to obtain the amount to depreciate. In the first year, the total cost of assets is multiplied by a percentage equivalent to twice the annual depreciation by the straight line method. In the second year, as in subsequent years, the percentage is applied to the book value of the asset. The book value means the cost of the asset less accumulated depreciation.
The depreciation of the truck, according to the double decreasing balance method, is calculated as follows:
| 100% | = | 20% x 2 | = | 40% annual |
| 5 year shelf life |
40% x book value (cost - accumulated depreciation) = annual depreciation
The following table shows the annual depreciation expense over the five-year life of the truck, using the double-declining balance method:
| METHOD: DOUBLE DECREASING BALANCES | ||||||
| Year | Rate | X | Value in books
(amount to depreciate) |
= | Annual depreciation expense | Accumulated depreciation |
| one | 40% | X | $ 33,000,000 | = | $ 13,200,000 | $ 13,200,000 |
| - 13,200,000 | ||||||
| two | 40% | X | $ 19,800,000 | = | 7,920,000 | 21 120 000 |
| - 7,920,000 | ||||||
| 3 | 40% | X | $ 11,880,000 | = | 4,752,000 | 25,872,000 |
| - 4,752,000 | ||||||
| 4 | 40% | X | $ 7,128,000 | = | 2,851,000 | 28,723,000 |
| - 4,752,000 | ||||||
| 5 | 40% | X | $ 4,277,000 | = | 1,277,000 | 30,000,000 |
| - 1,277,000 | ||||||
| $ 3,000,000 |
Note that in the last year 40% of $ 4,277,000 would equal $ 1,710,800 instead of the $ 1,277,000 presented in the table. It is necessary to maintain the scrap value of $ 3,000,000, because the asset cannot be depreciated below its recovery value. Therefore, the depreciation of the last year of the useful life of the asset must be adjusted, such that the total amount of accumulated depreciation will reach $ 30,000,000, that is, the part of the cost that must be depreciated throughout of the five-year period.
Depreciation in fractional periods
All the depreciation methods that have been presented show the amount of depreciation, for a full year of the life of the asset. Often an asset's year of life does not coincide with a company's fiscal year, or is not the same. Therefore, it is necessary to calculate the depreciation for the fraction of the year, to record the correct amount of expenditure in the fiscal period.
Using the same example of the truck from the previous exercises, suppose it was purchased on October 10, 19__. If the straight-line depreciation method is used, the calculation of depreciation expense for year A will be:
| $ 33,000,000 - $ 3,000,000 | = | $ 6,000,000 annual depreciation |
| 5 years |
| $ 6,000,000 | = | $ 500,000 monthly depreciation |
| 12 months |
The following table shows the depreciation over the five-year life of the truck.
| Fiscal year | Number of months | X | Monthly depreciation | = | Annual depreciation |
| TO | 3* | X | $ 500,000 | = | $ 1,500,000 |
| B | 12 | X | 500,000 | = | 6,000,000 |
| C | 12 | X | 500,000 | = | 6,000,000 |
| D | 12 | X | 500,000 | = | 6,000,000 |
| AND | 12 | X | 500,000 | = | 6,000,000 |
| F | 9+ | X | 500,000 | = | 4,500,000 |
| Amount to depreciate in the five years: | $ 30,000,000 | ||||
| * October to December | |||||
| + January to September |
Note that, in the table above, the first year of the asset's life goes beyond the company's fiscal period. In the straight-line method, each calendar month has an equal amount of depreciation. Therefore, the only differences that must be taken into account when calculating depreciation for a fiscal year lie in the first year and the year in which it is discharged, that is, in the last year. However, when using the sum of years digit or double the declining balance method, equal amounts of depreciation do not occur.
If the truck was purchased on October 10, 19__ and the sum of the years digit method was used, the calculation of depreciation for the first year would be:
| 5/15 x $ 30,000,000 ($ 33,000,000 - $ 3,000,000) = | $ 10,000,000 is depreciation for the first year |
The $ 10,000,000 must be distributed in the three months (October, November, and December) of year A in which the asset was used:
3/12 x $ 10,000,000 = $ 2,500,000, depreciation for year A
The balance of 9/12 x $ 10,000,000, that is, $ 7,500,000, will be applied as depreciation for the first nine months (January to September) of year B. Depreciation for the last three months of year B (October, November and December) is calculated like this:
4/15 x $ 30,000,000 = $ 8,000,000 x 3/12 = $ 2,000,000
The total amount of depreciation for year B is:
| $ 7,500,000 (last nine months of year 1) + $ 2,000,000 (first three months of year 2) | = | $ 9,500,000 |
The following table shows the depreciation for the five-year life of the truck using the sum of years digit method.
In most cases, the purchase of assets is made at times that do not coincide with the beginning of the fiscal year. It is important to remember that the depreciation expense must correspond to the company's fiscal year and not to the physical life of the asset. It is often useful to formulate a table showing the date the asset was acquired, as well as depreciation calculations for each fiscal year, before preparing depreciation adjustment entries.
| DEPRECIATION PROGRAM | |||||||
| Asset year | Fiscal year | ||||||
| Year | Calculation | Amount | Calculation | Amount | Year | ||
| one | 5/15 x $ 30,000,000 | = | $ 10,000,000 | 3/12 = | $ 2,500,000 | $ 2,500,000 | TO |
| two | 4/15 x 30,000,000 | = | 8,000,000 | 12/9 = | 7,500,000 | 9,500,000 | B |
| 3/12 = | 2,000,000 | ||||||
| 3 | 3/15 x 30,000,000 | = | 6,000,000 | 12/9 = | 6,000,000 | 7,500,000 | C |
| 3/12 = | 1,500,000 | ||||||
| 4 | 2/15 x 30,000,000 | = | 4,000,000 | 12/9 = | 4,500,000 | 5,500,000 | D |
| 3/12 = | 1,000,000 | ||||||
| 5 | 1/15 x 30,000,000 | = | 2,000,000 | 12/9 = | 3,000,000 | 3,500,000 | AND |
| 3/12 = | 500,000 | F | |||||
| S | 12/9 = | 1,500,000 | 1,500,000 | ||||
| Amount to depreciate: | $ 30,000,000 | $ 30,000,000 |
Adjustment entries to record depreciation
There are two situations in which depreciation should be recorded:
- At the end of the fiscal period, either monthly or annually, at the time of sale, or when the asset is derecognized.
In both cases, the accounts used to record depreciation are: a debit to depreciation expenses and a credit to accumulated depreciation. Two of the parts of the adjustment entry may vary according to the type of asset being depreciated: the amount and the name of the depreciated fixed asset. For example, the entry to record the depreciation of the truck (purchased on October 10, 19__) at the end of 19__, using the straight-line method, is as follows:
| 19__
Dec. |
31 |
Depreciation expense
Accumulated depreciation / truck |
1,500,000 |
1,500,000 |
A depreciation account can be established for each fixed asset, for each group of fixed assets, or an account that includes all fixed assets. Small businesses with few fixed assets can use only one depreciation expense account for everyone. However, companies with a greater variety of fixed assets may have separate depreciation accounts, such as one for buildings, one for machinery, and one for equipment.
The accumulated depreciation account is a compensatory account that reduces or decreases the fixed assets account. This account is not closed at the end of the accounting period, on the contrary, it continues to increase if the asset has been fully depreciated, sold or written off.
Presentation in the balance sheet
The accumulated depreciation account is presented in the balance sheet in the fixed assets section, as shown below.
| MATERIALES DE CONSTRUCCION, SA
PARTIAL BALANCE SHEET as of December 31, 19__ |
|||
| Assets | |||
| Total current assets | $ 28,000,000 | ||
| Fixed assets: | |||
| Ground | $ 50,000,000 | ||
| Building
Less: accumulated depreciation |
$ 150,000,000
30,000,000 |
120,000,000 |
|
| Machinery
Less: accumulated depreciation |
$ 75,000,000
40,000,000 |
35,000,000 |
|
| Trucks
Less: accumulated depreciation |
$ 100,000,000
25,000,000 |
75,000,000 |
|
| Total fixed assets | 280,000,000 | ||
| Total assets | $ 308,000,000 |
This method of presentation shows the original cost of fixed assets and the total amount of depreciation to date. The difference between the cost of the fixed asset and its accumulated depreciation represents the book value of the asset and not the market value.
Rules applicable to depreciation
Bulletin C-6 of the Accounting Principles Commission regarding real estate, machinery and equipment establishes the rules applicable to the depreciation of these assets. Among the most important rules are the following:
- Among the alternative methods to depreciate fixed assets, the one considered most appropriate should be adopted, according to the company's policies and characteristics of the property. The depreciation rates established by the Income Tax Law are not always adequate to distribute the total to depreciate over the life of fixed assets and that despite applying accelerated depreciation as a tax incentive, depreciation must be calculated and recorded according to the estimated life of such assets. Depreciation must be calculated on the basis of consistent methods and from the date fixed assets begin to be used and charged to costs or expenses.
FISCAL DEPRECIATION
Law on Income Tax
Current text
(Last reform applied 12/30/2002)
New Law published in the Official Gazette of the Federation on January 24, 2002.
In the margin a stamp with the National Shield, which says: United Mexican States.- Presidency of the Republic.
VICENTE FOX QUESADA, President of the United Mexican States, to its inhabitants, know:
That the Honorable Congress of the Union has served to address me the following DECREE "THE GENERAL CONGRESS OF THE UNITED MEXICAN STATES", DECREES:
First article. The following is issued:
LAW ON INCOME TAX
Chapter II
Deductions
Section II
Of Investments
Article 37
Investments may only be deducted through the application, in each year, of the maximum percentages authorized by this Law, on the original amount of the investment, with the limitations on deductions that, where appropriate, this Law establishes. irregular, the corresponding deduction will be made in the percentage that represents the number of full months of the year in which the good has been used by the taxpayer, compared to twelve months. When the asset begins to be used after the exercise has begun and the deduction is completed, it will be carried out with the same rules that apply to irregular exercises.
The original amount of the investment includes, in addition to the price of the property, the taxes actually paid due to the acquisition or import of the same, except for the value added tax, as well as the expenses
for rights, compensatory fees, freight, transportation, hauling, insurance against risks in transportation, handling, commissions on purchases and fees for customs agents. In the case of investments in automobiles, the original amount of the investment also includes the amount of investments in armoring equipment.
When the assets are acquired due to the merger or spin-off of companies, the date corresponding to the merged company or the spin-off company will be considered as the acquisition date.
The taxpayer may apply for hundreds less than those authorized by this Law. In this case, the chosen percentage will be mandatory and may be changed, without exceeding the maximum authorized. In the case of the second and subsequent changes, at least five years must elapse from the last change; When the change is to be made before said period elapses, the requirements established in the Regulations of this Law must be met.
Investments will begin to be deducted, at the taxpayer's choice, from the year in which the use of the goods begins or from the following year. The taxpayer may not initiate the deduction of investments for tax purposes, as of the beginning of the periods referred to in this paragraph. In the latter case, you can do it later, losing the right to deduct the amounts corresponding to the exercises that have elapsed since you could make the deduction in accordance with this article and until it begins, calculated by applying the maximum percentages authorized by this Law.
When the taxpayer disposes of the assets or when they cease to be useful for obtaining the income, he shall deduct, in the year in which this occurs, the part not yet deducted. In the event that the assets cease to be useful for obtaining income, the taxpayer must keep a weight in his records without deduction. The provisions of this paragraph are not applicable to the cases indicated in article 27 of this Law.
Taxpayers will adjust the deduction determined in the terms of the first and sixth paragraphs of this article, multiplying it by the update factor corresponding to the period from the month in which the asset was purchased and until the last month of the first half of the period in which the good was used during the year for which the deduction is made.
When the number of months included in the period in which the property has been used in the financial year is odd, the month immediately preceding the one corresponding to half of the period shall be considered as the last month of the first half of said period.
Article 38
For the purposes of this Law, fixed assets, expenses and deferred charges and expenditures made in preoperative periods are considered investments, the concept of which is indicated below:
Fixed assets is the set of tangible assets that taxpayers use to carry out their activities and that are demerited by their use in the taxpayer's service and over time. The purpose of acquiring or manufacturing these assets will always be to use them for the taxpayer's activities, and not to be disposed of within the normal course of their operations.
Deferred expenses are the intangible assets represented by goods or rights that allow reducing operating costs, or improving the quality or acceptance of a product, for a limited period, less than the duration of the activity of the legal entity. Intangible assets that allow the exploitation of public domain assets or the provision of a concessioned public service are also considered deferred expenses.
Deferred charges are those that meet the requirements indicated in the previous paragraph, except those related to the exploitation of public domain assets or the provision of a public service under concession, but whose benefit is for an unlimited period that will depend on the duration of the activity. of the moral person.
Expenditures made in pre-operative periods are those that are aimed at research and development, related to the design, elaboration, improvement, packaging or distribution of a product, as well as the provision of a service; provided that the expenditures are made before the taxpayer constantly disposes of his products or renders his services. In the case of extractive industries, these expenditures are those related to
exploration for the location and quantification of new deposits capable of being exploited.
Article 39
The maximum authorized percentages for deferred charges and expenses, as well as for expenditures made in preoperative periods, are as follows:
- 5% for deferred charges. 10% for expenditures made in preoperative periods.
- 15% for royalties, for technical assistance, as well as for other deferred expenses, except for those indicated in section IV of this article.
- In the case of intangible assets that allow the exploitation of public domain assets or the provision of a concessioned public service, the maximum percentage will be calculated by dividing the unit by the number of years for which the concession was granted, the quotient thus obtained it will be multiplied by one hundred and the product will be expressed in percent.
In the event that the benefit of the investments referred to in sections II and III of this article is realized in the same year in which the delivery was made, the deduction may be made in its entirety in said year.
In the case of taxpayers who are dedicated to the exploitation of mineral deposits, they may choose to deduct the expenditures made in pre-operational periods, in the year in which they are carried out. Said option must be exercised for all preoperative expenses corresponding to each field in the year in question.
Article 40
The maximum authorized percentages, in the case of fixed assets by type of asset, are as follows:
- In the case of buildings: 10% for buildings declared as archaeological, artistic, historical or heritage monuments, in accordance with the Federal Law on Archaeological, Artistic and Historical Monuments and Zones, which have the restoration certificate issued by the National Institute of Anthropology and History or the National Institute of Fine Arts. 5% in the other cases. In the case of railways: 3% for fuel supply pumps to trains. 5% for railways. 6% for rail cars, locomotives, armones and autoarmones. 7 % for track leveling machinery, nailers, track grinding machines, motor jacks for lifting the track, sleeper remover, inserter and drill. 10% for communication, signaling and remote control equipment.
- 10% for office furniture and equipment.
- 6% for boats. In the case of airplanes: 25% for those dedicated to agricultural aerofumigation. 10% for the rest. 25% for automobiles, buses, cargo trucks, tractor-trailers and trailers.
- 30% for desktop and laptop personal computers; servers; printers, optical readers, plotters, barcode readers, digitizers, external storage units, and computer network hubs. 35% for dies, dies, molds, dies, and tooling.
- 100% for livestock, vegetables, tax registration machines and electronic tax registration equipment. In the case of telephone communications: 5% for transmission towers and cables, except fiber optic cables. 8% for radio systems, including transmission equipment and management using the radio spectrum, such as digital or analog microwave radio transmission, microwave towers, and waveguides. 10% for equipment used in transmission, such as in-house circuits that are not part of the switching and whose functions are focused on the trunks that reach the telephone exchange, include multiplexers, concentrating equipment and routers. 25% for equipment of the telephone exchange destined for the switching of calls of technology other than electromechanical. 10% for the others.In the case of satellite communications: 8% for the satellite segment in space, including the main body of the satellite, the transponders, the antennas for the transmission and reception of digital and analog communications, and the monitoring equipment on the satellite. 10% for ground satellite equipment, including antennas for transmission and reception of digital and analog communications and equipment for satellite monitoring.including antennas for transmitting and receiving digital and analog communications and equipment for satellite monitoring.including antennas for transmitting and receiving digital and analog communications and equipment for satellite monitoring.
Article 41
For machinery and equipment other than those indicated in the previous article, the following percentages will be applied, according to the activity in which they are used:
- 5% in the generation, conduction, transformation and distribution of electricity; in grain milling; in the production of sugar and its derivatives; in the manufacture of edible oils; in maritime, river and lake transportation. 6% in the production of metal obtained in the first process; in the manufacture of tobacco products and derivatives of natural coal.
- 7% in the manufacture of pulp, paper and similar products; in the extraction and processing of crude oil and natural gas.
- 8% in the manufacture of motor vehicles and their parts; in the construction of railways and ships; in the manufacture of metal products, machinery and professional and scientific instruments; in the production of food and drink products, except grains, sugar, edible oils and derivatives. 9% in leather tanning and the manufacture of leather articles; in the elaboration of chemical, petrochemical and pharmacobiological products; in the manufacture of rubber and plastic products; in printing and graphic publishing. 10% in electric transport.
- 11% in the manufacture, finishing, dyeing and printing of textile products, as well as garments. 12% in the mining industry; in the construction of aircraft and in the land transportation of cargo and passengers. The provisions of this section shall not be applicable to the machinery and equipment indicated in section II of this article.
- 16% in air transportation; in the transmission of communication services provided by telegraphs and by radio and television stations.20% in restaurants.25% in the construction industry; in agriculture, livestock, forestry and fishing activities.
- 35% for those directly destined to the investigation of new products or technology development in the country. 50% in the manufacture, assembly and transformation of magnetic components for hard drives and electronic cards for the computer industry. 100% in the conversion to natural gas consumption and to prevent and control environmental pollution in compliance with the respective legal provisions.
- 10% in other activities not specified in this article.
In the event that the taxpayer is engaged in two or more activities than those indicated in this article, the percentage that corresponds to the activity in which he would have obtained more income in the immediately preceding year will be applied.
Article 42
The deduction of investments will be subject to the following rules:
- Repairs, as well as adaptations to facilities, will be considered investments provided they involve additions or improvements to the fixed asset. In no case shall expenses for conservation, maintenance and repair, which are paid in order to maintain the property in question in operating conditions, be considered investments. Investments in automobiles will only be deductible up to an amount of $ 300,000.00.
The provisions of this section shall not be applicable in the case of taxpayers whose activity consists in granting the use or temporary enjoyment of automobiles, provided they are exclusively destined for said activity.
- Investments in living rooms and dining rooms, which by their nature are not available to all company workers, as well as in airplanes and boats that do not have a concession or permission from the Federal Government to be commercially exploited, will only be deductible in the cases that meet the requirements set forth in the Regulations of this Law. In the case of airplanes, the deduction will be calculated considering the maximum original amount of the investment, an amount equivalent to $ 8,600,000.00.
In the case of taxpayers whose predominant activity consists in granting the temporary use or enjoyment of airplanes or automobiles, they may make the total deduction of the original amount of the investment of the airplane or automobile in question, except when said taxpayers grant the use or enjoyment temporary aircraft or automobiles to another taxpayer, when one of them, or their partners or shareholders, are themselves partners or shareholders of the other, or there is a relationship that in fact allows one of them to exercise a preponderant influence on operations on the other, in which case the deduction will be determined in the terms of the first paragraph of this section, in the case of airplanes and in the terms of section II of this article in the case of automobiles.
Investments in recreational houses will never be deductible.
- In the case of assets acquired by merger or spin-off of companies, the amounts subject to deduction shall not be higher than the amounts pending deduction in the merged or spin-off company, as appropriate. Commissions and expenses related to the issuance of obligations or of any other credit, placed among the large investing public, or any other credit of those indicated in article 9. of this Law, will be deducted annually in proportion to the payments made to redeem said obligations or titles, in each year. When the obligations and titles referred to in this fraction are redeemed by a single payment, the commissions and expenses will be deducted in equal parts during the years that elapse until the payment is made.permanent installations or improvements in tangible fixed assets, property of third parties, that in accordance with the respective lease or concession contracts are for the benefit of the owner and have been made from the date of conclusion of the mentioned contracts, will be deducted in the terms of this Section. When the termination of the contract occurs without the deductible investments have been fiscally redeemed, the value to be redeemed may be deducted in the statement of the respective year.When the termination of the contract occurs without the deductible investments have been fiscally redeemed, the value to be redeemed may be deducted in the statement of the respective year.When the termination of the contract occurs without the deductible investments have been fiscally redeemed, the value to be redeemed may be deducted in the statement of the respective year.
- In the case of royalties, the deduction may be made under the terms of section III of article 39 of this Law, only when they have actually been paid.
Article 43
Losses of assets of the taxpayer due to fortuitous event or force majeure, which are not reflected in the inventory, will be deductible in the year in which they occur. The loss will be equal to the amount pending deduction on the date it is suffered. In the case of assets for which the option established in article 220 of this Law would have been applied, the deduction will be calculated in the terms of section III of article 221 of the aforementioned Law. The amount recovered will accumulate in the terms of the article 20 of this Law.
When the non-individually identifiable fixed assets are lost due to a fortuitous event or force majeure or are no longer useful, the amount pending deduction from said assets will be applied considering that the first assets that were acquired are the first to be lost.
When the taxpayer reinvests the amount recovered in the acquisition of goods of an analogous nature to those he lost, or to redeem liabilities for the acquisition of said assets, he will only accumulate the part of the amount recovered not reinvested or not used to redeem liabilities. The reinvested amount that comes from the recovery can only be deducted through the application of the percentage authorized by this Law on the original amount of the investment of the property that was lost and up to the amount that was pending deduction of this amount as of the date of suffer the loss.
If the taxpayer invests additional amounts to those recovered, he will consider these as a different investment.
The reinvestment referred to in this provision must be made within the following twelve months from the date the recovery is obtained. In the event that the amounts recovered are not reinvested or are not used to redeem liabilities, in said term, they will be accumulated to the other income obtained in the year in which the term ends.
Taxpayers may request authorization from the tax authorities, so that the period indicated in the previous paragraph can be extended for another equal period.
The amount recovered not reinvested in the term indicated in the fifth paragraph of this article, shall be adjusted by multiplying it by the update factor corresponding to the period from the month in which the recovery was obtained and up to the month in which it is accumulated.
When the number of months included in the period in which the property has been used in the financial year is odd, the month immediately preceding the one corresponding to half of the period shall be considered as the last month of the first half of said period.
Article 44
In the case of financial leasing contracts, the lessee will consider the original amount of the investment as the amount that has been agreed as the value of the asset in the respective contract.
Article 45
When any of its options is used in financial leasing contracts, the following shall be observed for the deduction of investments related to said contracts:
- If you choose to transfer ownership of the property under contract by paying a certain amount, or to extend the contract for a certain period, the amount of the option will be considered as a complement to the original amount of the investment, so it will be deducted in the percent that results from dividing the amount of the option by the number of years remaining to finish deducting the original amount of the investment. If participation is obtained by the sale of the assets to third parties, it must be considered as deductible the difference between the payments made and the amounts already deducted, less the income obtained by participating in the sale to third parties.
Below is additional information about Tax Depreciation:
As previously specified, in accordance with the provisions of article 41 of the ISR Law, investments can only be deducted by applying each year the maximum percentages authorized by the ISR Law to the original amount of the investment..
The original amount of the investment includes, in addition to the price of the property, the taxes actually paid due to the acquisition or import of the same, except for VAT, as well as the expenses for rights, freight, transport, transportation, insurance against risks. in the transportation, handling, commissions on purchases and fees to customs agents.
Deduction in irregular exercises
In the case of irregular exercises, the deduction will be made in the percentage that represents the number of complete months of the exercise in which the asset has been used, compared to twelve months. This same rule will apply when the good begins to be used after the exercise has begun and in which its deduction is completed.
Option to apply smaller percentages to those authorized
The taxpayer may apply lower percentages to those authorized by the ISR Law, in which case the chosen percentage will be obligatory and may be changed without exceeding the maximum authorized, complying with the provisions of the Law.
Start of deduction
Investments will begin to be deducted at the taxpayer's choice, from the year in which the use of the assets begins or from the following year. In the event that the taxpayer does not begin to deduct the goods within the aforementioned terms, he may do so later, however, he will lose the right to deduct the amounts corresponding to the years elapsed.
Deduction update
The amount of the deduction determined will be updated by multiplying it by the update factor corresponding to the period from the month in which the good was purchased and until the last month of the first half of the period in which the good was used during the fiscal year. in which the deduction is made. In the event that the number of months included in the period in which the good was used in the financial year is odd, it will be considered as the last month of the first half of the period, the month immediately preceding that corresponding to half of the period.
When the good finishes depreciating in an exercise, the update factor that will be used to update the depreciation will be obtained as follows:
| Update Factor
= NCPI of the last month of the first half of the year in which the asset was depreciated INPC of the month in which the asset was acquired Example: A property acquired in May 1997, finished depreciating in May 2001. Update factor applicable to depreciation in 2001: FA = INPC February 2001 INPC May 1997 |
EFFECTS OF FISCAL DEPRECIATION ON EXPENSES
OPERATIONS OF A COMPANY
The effect of tax depreciation on companies' operating expenses is that it saves them a certain amount of money when they pay their taxes. This occurs above all with the assets belonging to the company, because over time, a tax saving will take place that will increase as the age of the property for which the tax is being paid increases.
EXAMPLE OF ACCOUNTING AND FISCAL DEDUCTION
The Company LPTelevision SA, wishes to replace a transmission equipment whose scrap value is $ 65,000.
The purchasing department has the following proposal:
Transmission equipment with a value of $ 300,000 (VAT included).
For the installation of the equipment, the supplier charges expenses equivalent to 11% of the purchase value (without considering VAT). The supplier will accept the obsolete equipment on account of the new equipment only in the case of cash payment.
For equipment maintenance, the provider provides a biannual service at a cost of $ 6,500 for the first 3 years and $ 7,000 for the last two years.
In addition, the company must purchase comprehensive coverage insurance whose premium is $ 3,000 for years 1 and 2 and $ 4,000 for the rest of its useful life.
The energy costs of operating the equipment are $ 3,800 semester on average over the five years.
In addition, an equipment operator must be hired whose salary will be $ 31,000 quarterly for the first 3 years with an increase of 25% for the rest of the period.
The equipment depreciation rate for tax purposes is 15% and the operation and maintenance expenses are 90% deductible. The ISR rate to be paid by the company is 35%.
The capital cost is 15% per year.
CONCLUSION
Having finished with the preparation of this work on Accounting Depreciation and Fiscal Depreciation, I can conclude that no matter how complex these issues may seem to us, someday, throughout our lives, we are going to need them.
I really liked having known even a little about them, since they will be very useful if I decide to start a business and even if I dedicate myself to work in a company, because even though it is not exactly the area in which it is supposed I'll get along, you never know what's to come in the future.
But regardless of that, when working, earning money and acquiring property, taxes always come as a consequence, so it is important to know what is and should not be paid. It is undoubtedly easy to find out, because the information is available to everyone, only sometimes we are not indecisive, which is why we sometimes suffer the consequences.
It was also very interesting for me to learn about some of the methods used in accounting depreciation, such as the straight line method, which is one of the most widely used today. It did not seem to me that making the calculations that this method implies is something of the other world, it is somewhat laborious, but knowing how much we should ask for a good that we will discard justifies the task. That way we will not be charging more, nor less.
BIBLIOGRAPHY
Name of the book: "Contabilidad".
Author: Gerardo Guajardo / Phebe M. Woltz / Richard T. Arlen.
EditorialMcGraw Hill.
Page title: "Income Tax Law".
Address: www.cddhcu.gob.mx/leyinfo/pdf/82.pdf.
Page title: "Calculation of accounting depreciation".
Address: www.came.com.mx/calcdepcf.htm.
Author: Sample Company Fiscal SA de CV
Page title: “Dictionary”.
Address: www.contaduria.gov.co/paginas/glosario/dicc_d.htm.
Unknown author.
Page title: “Fiscal Bulletin”.
Address:
Author: Pyansa for executives and administrators of the alert group.
The different methods of accounting depreciation are explained by Professor Elsa Marina Rangel, through practical exercises, in the following series of videos. A good complement to this document and to continue your learning of the accounting process.
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