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As we well know, when making purchases and acquisitions of productive factors, we must differentiate said productive factors, depending on the period of time in which they will become liquidity for the company, that is, they will be operational, generating and providing profitability to it.

In this sense, we essentially distinguish between two types of material productive factors:

  • Current goods and services. Applied for the acquisition of material productive factors (merchandise, raw materials, spare parts, auxiliary materials, etc ...) and immaterial (services of all kinds). We use group 6 accounts, with the nuance that all the expense invested in them is considered current expense, and therefore, deductible in the same fiscal year in which it is generated. This is so because it is considered that these goods and services are going to be available to the company to contribute and generate returns for a period equal to or less than one year.
  • Investment property. Applied for the acquisition of fixed asset elements, both tangible and intangible (machinery, vehicles, industrial buildings, facilities, computer programs, website, etc ...). We use group 2 accounts for them. The amounts invested in these chapters are not considered current expenses, but investment. For this reason, they are not fully considered as an expense for the year. This is so because it is considered that these assets will be available to the company to contribute and generate returns for a period of more than one year.

As we have seen, the process by which we are going to recover the spending fiscally is quite different in both cases. In the first, the expense is recovered fiscally in the same year in which it occurs. For example, if we spend 100 euros on office supplies, due to the accounting record and tax treatment, those 100 euros will represent an expense in the income statement, and therefore, it will have been fully deducted for tax in the same year in that have been spent.

The accounting record of the purchase of goods and services will be as follows:

General product purchases. Should To have
(60X) Purchase of merchandise, raw materials, other supplies, etc ... 1.000,00  
(472) H.P. VAT supported 210,00  
(400) Suppliers / (410) Creditors   1.210,00

 

General purchases of services. Should To have
(62X) Various services 500,00  
(472) H.P. VAT supported 105,00  
(410) Creditors   605,00

 

In both cases, we use group 6 accounts, which makes them fully deductible in the same year in which they occur.

However, it would be necessary to qualify and differentiate, in this first case, between the productive factors that are storable (inventories), and those that are not.

  • Those that are not storable are considered a full deductible expense for the year in which they accrued. Examples are supplies of all kinds (electricity, water, fuel, etc ...), as long as the company does not have a storage tank (for water and fuel).
  • Those that are inventories would actually be subject to a process of accounting accrual, through the mechanism of inventory variation, in order to determine the part of the purchase actually consumed in the year. Examples of this are merchandise, raw materials, spare parts and others, etc ...

In the second, on the contrary, the investment is gradually becoming a tax deductible expense, and therefore, it can be recovered as such, over a series of financial years.

These exercises are related to what is known as the USEFUL LIFE of these elements. The useful life of an element of fixed assets is nothing more than the number of years that it can be working and producing, under normal operating conditions, in a company.

The process through which the fixed asset becomes a deductible expense is what is known as amortization. What comes to reflect amortization is the process by which the fixed asset loses value, depreciates, depending on its degree of use or utilization in the production process. There is no doubt that any productive element is being spent and consumed, as it is used for the purpose for which it was acquired: a machine, a vehicle, a computer, an installation, etc ...

In general, a fixed asset has less and less value for three different reasons, which interact with each other, causing this decrease in value:

  • By the use. That is, by the use for which it was purchased and / or manufactured. Undoubtedly, the fact of using a fixed asset element for the function for which it was designed, causes it to gradually consume and wear out, throughout its useful life, until a time comes when its value is null.
  • By the passage of time. Even if a fixed asset is not used 100%, the simple passage of time causes it to be consumed anyway, until a moment when its capacity to contribute is practically nil..

Due to technological obsolescence. It is another variable that intervenes and affects the ability of a fixed asset to contribute wealth. It occurs, above all, in fixed assets with a significant technological load, where advances and new developments leave previous developments out of date, although very little time has elapsed.

In a previous work we analyzed the different systems by which the amortization, depreciation of value or wear and tear, suffered by these fixed assets, can be valued and quantified, based on different parameters. We are simply going to mention in this work the different systems:

  • Linear amortization according to official tables of the Ministry of Economy and Finance (MEH).
  • Amortization according to a constant percentage of the item's net book value.
  • Amortization by the system of increasing digit numbers.
  • Amortization by the system of decreasing digit numbers.
  • Freedom of amortization.

To illustrate the process by which a fixed asset gradually wears out and is consumed, according to its useful life, and this wear and tear is transferred to the income statement, in order to deduct the expense, we are going to base ourselves on the linear amortization system , according to the official tables of the MEH. On the other hand, it is the system used by the vast majority of companies when it comes to quantifying and evaluating this process of wear and tear suffered by fixed assets.

As well, we know, for all types of items, depending on their nature, the MEH establishes a minimum and maximum number of years of useful life, which translates into a possible range to quantify said depreciation. As long as we do not go outside of that range, in general, we will not have a problem with the deductibility of the amortization expense.

Let's suppose that we make the purchase of computer software for the management of our production, accounting, tax and commercial processes. The total investment is 30,000 euros. According to the aforementioned tables, this software could be classified under the SYSTEMS AND COMPUTER PROGRAMS section.

This element can be amortized between this range of values, in general:

  • Maximum linear coefficient of 33%, which means a minimum useful life of 3 years. If we apply this extreme, we will be faced with an annual depreciation of 10,000 euros, and therefore, a useful life of the item of 3 years in our accounting.
  • Maximum useful life of 6 years, which represents a minimum linear coefficient of 16.5%. If we apply this other lower extreme, the annual depreciation will amount to 5,000 euros per year, and this element will be present in our accounting for a period of 6 years.

The accounting records of all the possible options, for the complete treatment of the previous operation, would be the following:

For the purchase of the software:

Investment in fixed assets (01-01-2020) Should To have
(206) Computer applications 30.000,00  
(472) H.P. VAT supported 6.300,00  
(173) Providers of long-term fixed assets   36.300,00

 

Suppose that we use the maximum amortization coefficient, and therefore, the minimum number of years of useful life of the element (3 years of useful life and 33% linear amortization).

Amortization (31-01-2020) Should To have
(680) Amortization of intangible assets 10.000,00  
(280) Accumulated amortization of intangible assets   10.000,00

 

After this first year of useful life, our computer software has 2 years left to live, and its net book value amounts to 20,000 euros (30,000 euros of investment - 10,000 euros of accumulated depreciation). 10,000 euros of deductible expense are transferred to the income statement for this financial year. 

Amortization (01-31-2021) Should To have
680) Amortization of intangible assets 10.000,00  
(280) Accumulated amortization of intangible assets   10.000,00

 

After this second year of useful life, our computer software has 1 year to live, and its net book value amounts to 10,000 euros (30,000 euros of investment - 20,000 euros of accumulated depreciation). As in the previous year, 10,000 euros of deductible expense are also transferred to the income statement for this financial year.

 

Amortization (31-01-2022) Should To have
(680) Amortization of intangible assets 10.000,00  
(472) H.P. VAT supported   10.000,00

 

After this third year of useful life, our computer software has no years left to live, and its net book value amounts to 0 euros (30,000 euros of investment - 30,000 euros of accumulated depreciation).

We also transferred another 10,000 euros of deductible expense to the income statement for this financial year, having completed the process of deducting the total investment, and with it, the useful life of the item, at least in accounting. The following accounting adjustment would proceed:

 

Retirement of asset element (01-31-2022) Should To have
(206) Computer applications   30.000,00
(472) H.P. VAT supported 30.000,00  

 

On the contrary, if we had opted for the other extreme allowed in the MEH table, for this element of fixed assets, the accounting process would be repeated for 6 financial years, reaching the same end. The accounting records would be the following. 

 

Amortization (31-01-2020) Should To have
(680) Amortization of intangible assets 5.000,00  
(280) Accumulated amortization of intangible assets   5.000,00

 

Amortization (31-01-2021) Should To have
(680) Amortization of intangible assets 5.000,00  
(472) H.P. VAT supported   5.000,00

 

Amortization (31-01-2022) Should To have
(680) Amortization of intangible assets 5.000,00  
(280) Accumulated amortization of intangible assets   5.000,00

 

Amortization (31-01-2023) Should To have
(680) Amortization of intangible assets 5.000,00  
(280) Accumulated amortization of intangible assets   5.000,00

 

Amortization (01-31-2024) Should To have
(680) Amortización del inmovilizado intangible 5.000,00  
(280) Accumulated amortization of intangible assets   5.000,00

 

Amortization (01-31-2025) Should To have
(680) Amortization of intangible assets 5.000,00  
(280) Accumulated amortization of intangible assets   5.000,00

 

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