Concepts for the Fixed Assets Module
Fixed Asset
The goal of the SIGAATF environment is to reduce profit by preventing shareholders, when seeing a high profit, from withdrawing, through dividends, this money that should be safeguarded. Thus, depreciation expense is credited to an account called Accrued Depreciation, and its resources are used to strengthen the company's working capital by increasing current assets.
Permanent Asset
Investments: Equity interests of a permanent nature (shares), goods, and rights also acquired on a permanent basis and which are not used in the company's production activity.
Deferred Charges: Represent the expenses, incurred or not, pre-operational expenses (expenses incurred before the start of the company's activities) or with the company's restructuring, and must be amortized within a maximum of 10 years.
Fixed Assets: These are goods acquired on a permanent basis for use in the company's production activities.
Cost of fixed assets - Acquisition cost is considered to be all the expenses incurred to acquire the asset (IPI, freight, labor) and the expenses incurred to put it into use in the production process.
Small Value Assets
These can be considered as expenses or costs provided the unit value of the asset is lower than BRL 326.21 or with a useful economic life of less than one (1) year. Always check the value with the customer's accountant.
Some assets are only useful to the company as a group. In these cases, the value above refers to each group.
Hardware and Software must be capitalized.
In the case of Hardware - it must be depreciated in at least 5 years.
In the case of Software - it must be amortized in 5 years
Principle of Substance over Form
Accounting Council Resolution - 95
Form = legal aspect of the operation
Substance = economic aspect of the operation
Whenever there is a conflict between the legal and economic aspects, the economic aspect (substance) prevails. This is the case of the consortium, in which, applying the Accounting Principle, the correct thing to do would be to consider it as fixed assets, but due to the economic aspect it is considered as an expense (the tendency would be to capitalize the total value of the Contract).
Assets Produced by the Company
To arrive at the costs of the units produced, the following must be considered:
1. Costs of materials used
2. Workforce
3. Charges
4. Direct and indirect costs
While transferring assets produced in the head office to the branches and vice versa, you must consider the value of the stock (costs).
Building in Progress
All Material is recorded in a fixed asset account and, at the end of the construction, these values are transferred to the Fixed Asset account.
In cases of renovation with parts from other equipment, all items that can be valued must be listed, and the depreciation of the machine whose parts were used in the renovation must also be considered.
Donations
Consider market value for fixed assets - Normative Opinion 113/78
If it is a donation from the Government
Consider the Market Value
The receiving company considers it as Capital Reserve.
If it is a donation from a Private Company
Consider the Market Value;
The receiving company uses Market Value as Acquisition Cost;
The donee will have non-operating income, but taxed;
To the donor, the donation amount will be considered a non-deductible loss (exceptions for donations to Philanthropic or Public Utility companies).
Maintenance and Repairs
Article 286 - RIR/94 - Income Tax Regulation Normative Opinion 22/87
Determine the rest of the depreciation;
Apply the rest of the depreciation on the Maintenance cost (Expense Account);
Check the difference between the Maintenance Cost and the result of the item above (fixed asset).
Only apply this criterion when the maintenance promotes the increase of the asset's useful life. Otherwise, consider the value of the maintenance cost as an expense and do not capitalize any value.
Depreciation
Regular
It is a form of registering the loss of value of the asset due to wear and tear, obsolescence, natural action etc. It is classified as a reducing account.
Generally, depreciation is made by usage, because a Technical Report from competent authorities is required for obsolescence or natural action.
The depreciation rate is determined by: Economic Useful Life
Example:
Vehicles at the 20% rate; this rate can only be increased with a Technical Report from a competent official body (IPT).
The depreciation rate can be reduced.
Example:
In 1995, 15% was the rate used, when the correct would be 20%. In 1996, I can return to the rate = 20%, but the difference of 5% relative to the year 1995 cannot be recovered.
The depreciation generates expense (administrative area) or cost (production area).
It starts to be calculated from the moment when the asset was put into use. Assets that do not lose value (appreciate) do not suffer depreciation (Artwork, Real Estate, etc...)
The system calculates the Depreciation based on the annual rate entered for each item until the accrued depreciation value is equal to the acquisition value in a strong currency.
Calculation of Depreciation
Value in BRL x Depreciation Rate = Annual charge in BRL
(Annual Charge / 12) = Monthly Charge in BRL
For assets acquired during the fiscal year, the rate must be proportional to the period the asset is depreciated (in months, not in days).
Example:
Dec /95 at BRL 20,000.00 x 10 % = BRL 2,000.00 (10% per year)
Monthly Record at 2,000 / 12 = BRL 166.66 (depreciation per month)
There is no obligation to make the depreciation proportional to the days of the month in the case of assets purchased in the middle of the month, being at the discretion of the company
For assets acquired up to Dec/95, the corrected original value will be:
Corrected Value = Original value: + Accrued Indexation (up to Dec/95)
The residual value will be used to determine the profit or loss on the sale of an asset.
Residual Value = Corrected Value - Accrued Depreciation (up to Dec/95)
Residual Value = Original Value - Accumulated Depreciation (after Dec/95)
Accelerated depreciation
Regular Acceleration - The depreciation will be based on the number of daily hours of operation. The law determines the rate of acceleration, such as:
1 shift of 8h at 1.0
2 shift of 8h at 1.5
3 shift of 8h at 2.0
Asset running in 2 shifts -> 10% x 1.5 = 15% (depreciation rate)
Asset running in 3 shifts -> 10% x 2.0 = 20%
Acceleration Incentive - It is a tax incentive with the purpose of encouraging the modernization of facilities and equipment.
Decree no. 2433/88 and statute nos. 8661/93 and 8248/91
Provisional Measure no. 1435/96 - Deals with assets acquired between 06/14/96 and 12/31/97 that have IPI and ICMS exemptions.
This depreciation is an extra accounting incentive and is controlled by the LALUR - Book of Statement of Real Earnings. The accounting record must be regular, but when determining the record in LALUR, delete the Net Profit from part "A" of LALUR and record it in part "B".
Accounting Income:
+ at Inclusions
- at Deletions
= at Actual Profit/Tax loss (in the case that the Profit applies 15% for Inc. Tax Calc.)
Used Assets
Normative Instruction 103/84
For the depreciation of used assets, half the useful life of a new asset or the remaining useful life of the asset (whichever is higher) is considered.
Example: New Machine: 10 years of useful life
Used Machine: 5 years of useful life
Whoever sold the machine used it for 6 years. Therefore, the remaining useful life will be 4 years.
In conclusion: The machine must be depreciated in 5 years.
Depletion
Mineral Resources
1st Criterion - It is the percentage ratio between the production volume and the ore reserves of the mine (ore reserves = Amount of ore that the mine possesses)
Example:
Ore reserves: 1000 tons
Production Volume in the period: 150 tons
Depreciation rate= 1000 at 100 x = 15 %
150 at x
Depreciation = 15% x Mine value = Depletion charge
2nd Criterion - Based on the concession term for exploitation of the mine.
Forest Resources
Fruit trees do not suffer depletion, they suffer depreciation for the period that they bear fruit. Trees that suffer depletion are those used to produce furniture or paper. There must be a project for planting and another for cutting (with Ibama's authorization). To determine the number of trees, it is necessary to consider how many times the tree sprouts again after the cut.
Amortization
Loss of capital value applied in the acquisition of intangible assets
Trademarks and Rents
Amortization can only be done with rights that have a term of use (we cannot amortize telephone lines)
Rent can be amortized over the period stipulated in the Rental Contract
Trademarks and Patents have a term defined by law to consider the first period, not considering renewals.
Assets subject to depreciation must be registered with the field "Classification" filled in with:
S - Net Equity
A - Amortization
C - Capital Stock
The calculation is the same as in depreciation.
Indexation/Monetary correction
This corresponds to the variation in the value of the asset in local currency, based on its original value in a strong currency and updated by the quotation of this currency on the last day of the month.
Indexation of Depreciation
It corresponds to the variation of the already depreciated balance of the asset (in local currency), calculated from this balance in a strong currency and updated by the exchange rate of this currency on the last day of the month.
Posting of Assets from the Permanent Asset
In the accounting posting, the asset must also physically leave the company. The posting of the asset must be done based on the acquisition value and, in the cases of assets acquired until 12/31/95, must be monetarily corrected.
In the case of companies that do not have fixed asset control and need to post some assets, it is necessary to:
- Identify the asset and the acquisition date (consider the oldest)
- Quantify this asset in ORTN/OTN/BTN/FAP/UFIR
- Monetarily correct until 12/31/95 (the correction must be made until the sale date)
- Determine the accrued depreciated percentage
- Correct the Depreciation (from the beginning of depreciation up to 12/31/95).
1- Quantify in no. of UFIR
2 - Correct value up to 12/31/95
3 - Calculate the accrued percentage
4 - Determine the Accrued Depreciation
5 - Correct the Value of the Accrued Depreciation
In the system, the accrued depreciation value is already calculated. Therefore, when the asset is posted, the depreciation value in the Accounting Record will be calculated as follows: Accrued Corrected Depreciation + Depreciation Amount in the Month
6 – Account
Using the Asset Posting
Debit – Capital Gains/Losses
Credit - Fixed Asset
Depreciation Posting
Debit - Accrued Depreciation
Credit – Capital Gains/Losses
Sales
Debit - Availability
Credit – Capital Gains/Losses
In the calculation of Income
Debits - Capital Gain Loss, Credits - Income for the year
Revaluation
Every revaluation must be performed through a Technical Report issued by authorized companies.
The Technical Report must be specified (grounded) and must include a statement of the calculations and parameters used to reach the stipulated value for the asset.
Only assets from the Permanent Asset can be revaluated.
You can perform revaluation in order to prevent a great difference between the Historical Value and the Market Value (these differences will arise in an economic analysis of the company).
In the case of large companies, when it is impossible to revalue the entire fixed asset, it is convenient to revalue assets of the same kind.
Tax Record:
The revaluation amount is exempt from taxation as long as it is treated as a reserve;
When the reserve is executed, the value is taxed.
The reserve is executed when the asset is sold or the value is used to cover accounting differences.
Accounting Record:
Debit Accrued Depreciation and Credit Fixed Assets
Debit - Fixed Asset
Credit - Revaluation Reserve
In the Revaluation account, it is necessary to identify the assets that are being revalued.
Depreciation of revaluation amount
Normative ruling 27/81 -> if the report stipulates a new period of useful life for the asset, then the asset must be depreciated considering the new period.
If this period is not stated, then you must depreciate according to the previous life period.
Base Code
Each asset or batch of assets that is registered must receive a unique code for its identification, defined by the user according to their criteria.
Item: This field is used to add an item to another in events of extension or expenses.
Asset Types:
Type 01 for Acquisition
Type 02 for Revaluation
Type 03 for Advance
Type 04 for Statute no. 8200
Advances Use this type to identity advances and allow the system to correct them.
Example: Advance payments for the construction of a workshop shed, and each advance as one item
Postings of Advances
The purpose of this routine is to allow several assets to be grouped, generating a single final asset.
An example is a construction, where the construction material added is classified as "advance payment". Ex: sand, cement, bricks, machines, etc. At the end of the construction work, all the assets related to the job code are grouped, and the sum of their respective costs will be the cost value of the construction. The advance payment assets are automatically posted, and the new asset, the building, is registered in the system.
Statute no. 8.200 (BTN/IPC Difference)
Statute no. 8200 established that the differences determined by the variation of the two indexes on the assets acquired up to Dec/90 (legislation 90/91) must be controlled in the books separately.
That is, article 3 of statute no. 8200/91 is determining a treatment for the difference verified in the value of the Indexation of 1990, calculated by the BTNF, compared to the variation of the Consumer Price Index - IPC.
When implementing, we must register:
1st The asset with type 01 and the other fields requested by the system
2nd The calculated difference in the same base code/Item, but as type 04
Put the value of the difference in the Original Value field in Currency 1 and convert it to the other currencies used by the company. Then, enter them in the fields corresponding to the original values in other currencies and fill in the other fields requested by the system.
Example:
Code Item Type Description Value
VE0001 0001 01 Vehicle Acquisition 10 000.00
VE0001 0001 04 Statute no. 8200-BTNF/IPC Diff.2 500.00
Currency Rate
This allows the system to convert the historical data regarding the transactions by the corresponding rates of the day of occurrence, as well as to calculate the average rate.
Extension
Expenses with repair, conservation, or replacement of parts and pieces of the fixed assets of the legal entity which result in an increase in the useful life of the asset must be activated to serve as a basis for future depreciation, as long as this increase in useful life is greater than one year.
Extensions and renovations of assets already capitalized can be added to them and have the monthly depreciation value increased and the term maintained, or they can be considered separate items and have their own depreciation, thus lengthening the life of the asset. This choice can be made according to the company's economic interest, that is, its need to generate expenses.
For accounting, the standard entry "821" should be used. The difference added to the value will be stored in file SN4. The extension is only allowed for type 01 assets.
Postings
The elements removed from the fixed assets as a result of their disposal, liquidation, or posting due to perishing, extinction, wear and tear, obsolescence, or depletion, must have their accounting values posted from the respective fixed asset accounts in the exact proportion of the posting performed.
The accounting entry of the retirement involves a credit to the corrected cost account and a debit to the respective accrued (or other) depreciation account, the counter-entry of which will be posted to a profit and loss account for the period that will record the net value of the asset posted, the amount of the disposal if any, and, as balance, the gain or loss.
To perform the posting, it is necessary to enter the value or quantity of the posting, the date, the reason, and the number of the receipt (if it is a sale).
The partial posting of items with groupings, types "02-Revaluation" or "04-Statute no. 8200", must be done by value. It is also recommended that these groupings be dropped together with the parent item, entering "Yes" in the "Drop children?-(Reval/Statute no. 8200) Y/N" question.
Using the standard entries, you can define the sequence for the accounting of the posting.
The posting can be performed by quantity, value, or percentage.
The posting by quantity or percentage implies a reduction in the quantity of the asset and its proportional value, while the posting by value only causes a reduction in the accrued values.
Posting by quantity or percentage - Implies reducing the quantity of an asset
Posting by Value - Reduction of the accrued values. Assets with types 01 (acquisition), 02 (Revaluation), 04 (Statute no. 8200), or all of them must be posted by value.
Assets of types 02 and 04 must be posted together with type 01 in the same proportion.
The "Automatic" option enables the automatic posting of a batch. Generic data regarding the posting must be entered, and items must be selected.
Transfer
• PHYSICAL - when an asset is transferred to a location different from where it is now.
• ACCOUNTING - when the accounting balance of an asset is transferred to another ledger account.
When an Accounting Transfer is performed, an accounting entry must be performed in order to transfer the current account values to the receiving accounts in the same proportion.
Acquisition by Transfer
This option allows the transfer of assets acquired as advance payments (N3_TYPE = "03"), or definite goods (N3_TYPE = "01"); check the parameter Consider assets?; this allows the generation of one or more assets from the selected assets. Each row that the user enters will be a new definitive asset. The original value of each asset must be reported in its respective field. The sum of the values of all the selected assets must not exceed the sum of the original values of the new assets to be generated.
Calculation
This routine performs the monthly calculations of indexation and depreciation of the registered assets. It must be used every month (last day of each month) so that the assets are updated according to the strong currency rates (MV_ATFMOED is currently the UFIR). For this process to be successful, it must be observed if the monthly rates and the depreciation percentages were correctly entered, as well as the accounts linked to the asset.
With each calculation performed, the date of the last calculation is stored in the "MV_ULTDEPR" parameter. For accounting in the calculation, the standard entry 820 is available. This can be set up in a way that best suits the user at the time of accounting.
If the standardized entry does not exist, the system will generate the accounting entry according to the asset's accounts.
It is necessary to back up the database before and after the calculation.
It is important that the user makes a backup, especially before performing the Monthly Calculation procedure, and that they keep this backup for at least a year, since the government may issue regulations regarding the calculation method for the fiscal year.
Recalculate balances
In this routine, the user defines the way to reconstruct the Balance File (SN5), which can be done from the Asset Registration or the Transaction File.
In the way the Balance File (SN5) is saved, there will always be a sum in the record (except when it is a reversal/cancellation), regardless of whether it is a Fixed Asset or an Equity. The subtraction will be handled in the "Ledger" report.
This change/implementation facilitates initial deployment, file maintenance, or importing from other databases.
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