Intangible assets are objects that do not have a physical form. They differ from the fixed assets of the enterprise, which often have a material form, and their depreciation is associated with natural wear and tear.
It is important to take into account that IA serve the organization to generate income. They transfer the cost to the costs not at one moment, but during the useful life.
We will tell you more about intangible assets in general and depreciation of IA in tax accounting in particular in this article.
What applies to intangible assets
IA should be reflected in the accounting statements according to the rules of PBU 14/2007 “Accounting for intangible assets”. The document was approved by the order of the Ministry of Finance of Russia in 2007. According to the rules, intangible assets are intellectual property objects that bring income to the company and are used for more than 12 calendar months. As we noted earlier, they have no tangible form and are separated from other assets, including fixed assets.
There are a number of conditions for recognition as an asset of an IA:
- You can determine the initial price of the object.
- It will be used for 12 months – at least this period.
- The firm controls the asset, that is, it has rights to it.
The last point is the most important, since without the exclusive rights to the asset, it cannot be carried out according to accounting statements. If at least one of the above criteria is not met, then the right to the object itself and the income received is lost.
Thus, intangible assets include:
- Computer software.
- Electronic databases.
- Works of science, literature and art.
- Inventions and created industrial designs.
- Achievements in the field of breeding.
- Commercial finds and other achievements.
- Brand name of the brand.
- Trademarks and service marks.
- Commercial designations.
- Business reputation of the organization.
As an example of an IA, any software purchased officially for the convenience of a factory or company can be cited. Also an example of HMA is the technology of growing early apples found in a peasant farm. Its implementation and receipt of income from activities is an example of the work of the IA.
However, this list is not final. If other means fall under all three criteria, then they can be carried out as IA.
Definitely not related to IA:
- Financial investments, including stocks, bonds and other securities recorded in the “depot” account.
- Representation and other expenses.
- Spending on employee training and professional development.
- Research and development work that has not achieved its goal.
- Disks, flash drives and other devices on which objects of intellectual activity are recorded.
In turn , the list of IA objects with exclusive right includes:
- The right of the patent holder to his invention, industrial design, utility model.
- The author’s right to a literary, film musical and other work created by him.
- The author’s right to use the topology of integrated circuits.
- The right of the organization to a trademark, service mark, the name of the place of origin of goods and the brand name.
- The right to breeding discoveries.
- The right to various “know-how” in relation to commercial, industrial and other facilities.
How intangible assets are accounted for in accounting and tax accounting
All assets of the IA must be held on account 04 “Intangible assets”. It is important to account for intangible assets at the original price. Depreciation is reflected on the current date.
There are several categories of IA:
- Differing in the method of receipt: donation, purchase, exchange, self-creation, barter and more.
- Differing in the method of use: at work, in the office, in other ways, or not used at all.
- Different by amortised: accrued or not. Some objects may become obsolete due to the development of technology, something is relevant for many years.
As for the adoption of IA for accounting, this happens at the initial and subsequent cost. The first one is not subject to change. The initial price itself depends on the method of obtaining the NMA by the company. In particular:
- If the IA is purchased with the company’s funds, then it consists of all expenses incurred: the amount of the contract, customs duties and fees, non-refundable amounts of taxes and patents, remuneration to intermediaries, expenses for information and consulting services and other expenses.
- If the IA is created on their own, then in addition to spending on increasing the initial cost, the price of manufacturing materials, contractor services, employee salary expenses, maintenance and operation costs of assets that were involved in the formation of the IA, as well as other expenses are added.
- If the IA was donated, then the initial price is determined by the valuation of the asset made by an independent appraiser.
- If the IA was transferred as a contribution to the authorized capital, the initial cost is taken into account in the minutes of the owners’ meeting.
As for the subsequent assessment, it may arise due to the revaluation of IA or their depreciation. Whether to carry out a revaluation is decided by each company independently. However, if such a decision is made, then the cost change is carried out with a certain regularity. Revaluation of IA helps to increase the capitalization of the company. There are other “advantages”: a quick exit to the transaction in case of sale and transfer of the rights to use the IA, at the conclusion of a license agreement or when calculating the amount of royalties.
Companies that prepare financial statements in accordance with International Financial Reporting Standards (IFRS) should check the IA for depreciation. Organizations applying the Russian Accounting Standards (RCS) are not required to check the IA for depreciation.
Accounting and tax accounting of depreciation of IA
The rules for writing off IA allow assets to be disregarded only after they have lost their value, which is confirmed by depreciation. In tax accounting for depreciation, the main thing is to correctly determine the useful life of the IA. The term refers to the period of time when the firm expects to use the IA to generate income. The calculation of the term is important for determining the amount of depreciation.
As an example, the following can be cited: if the exclusive rights are purchased for a fee, then the useful life is determined by a patent, certificate or contract, where the term of the exclusive right to the volume of IA is specified. If the NMA is made with your own hands, then it is possible to determine the term yourself.
It is important to know that the useful life of the IA is prescribed for each object separately. If it is impossible to determine the exact term for a certain object, then this object is not depreciated as an asset with an indefinite useful life.
The useful life is reviewed and rechecked annually. In case of real changes, the period is rewritten in the accounting documents. The same applies to assets with an indefinite term. If the period of use has become clear, then this information is reflected in accounting and tax accounting.
PBU 14/2007 establishes several methods for calculating depreciation of IA:
- Linear. It consists in the fact that during the entire useful life of an intangible asset is written off in equal shares. Depreciation is calculated monthly, starting from the next month after the property is put into operation, and until the initial cost of the fixed asset or intangible asset is fully amortized.
- The reduced balance. When calculating depreciation, the residual value of depreciation fixed assets is taken into account. Every year the indicator will be lower. Consequently, the amount of depreciation will decrease.
- Write-offs of the cost in proportion to the volume of products, works performed or services rendered. Depreciation is determined based on the initial or current value of the object and the ratio, the numerator of which is the number of years remaining until the end of the useful life of the object, and the denominator is the sum of the numbers of years of the useful life of the object.
The Finance department should take into account that in case of an inaccurate assessment of the material benefits from the use of IA, it is better to use the linear method.
Depreciation of IA in tax accounting occurs by slightly different methods of determining the useful life and methods of depreciation of IA. This concerns the following:
- IA is distributed into depreciation groups into 10 groups.
- If the useful life of IA cannot be determined, then they will be amortized based on a ten-year period. In the trailer, any term can be set, but the main thing is at least two years.
- If the company transfers contributions for the IA object, then they can be taken into account as other expenses. In this case, it is not necessary to amortize the NM.
- For intangible assets with a useful life of more than 20 years, only the linear method can be used. For the rest of the objects, you can. At the same time, it is possible to switch from the nonlinear depreciation method to the linear method no more than once every five years.
It is important to fix the selected method of accounting for depreciation in the accounting policy of the company. Depreciation itself is charged already from the 1st day of the month following the period of acceptance of the asset for accounting. Depreciation is accrued until the final repayment of the cost, write-off or disposal of the asset.
In order to take into account the depreciation of IA, it is necessary to select account 05 “Amortization of intangible assets”. Depreciation of IA is calculated by accounting entry: debit of account 05 “Amortization of intangible assets” and credit of account 04 “Intangible assets”.
As for the disposal of intangible assets, before the expiration of its useful life, it can be sold, donated or transferred to the authorized capital of another company. Then the company will not have rights to the asset and it can be written off from the balance sheet. The process is formalized through the adoption of an act.