Hi
I am hoping to start my AAT. I am in a company and there was a discussion between the Finance Officer and a Director.
Year 1 - company is planning on making a loss, Year 2 - company is planning on breaking even, Year 3 + make a profit.
Finance Officer wanted to capitalise some assets, but the Director didn't want to, as he wanted to show the expense in Year 1. I couldn't really follow what was being said. Is it because he could transfer the tax loss to a future year?
Can you explain why they didn't agree? Thank-you!
Replies (6)
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You need to give us more.
Chances are it's not a tax thing but there's not enough information.
In the old days, you capitalised or not according to the accounting policy not by reference to the desired impact on the accounts. Capital expenditure is capital; revenue expenditure is revenue.
Presuming there’s an argument for a judgement call to be made it looks as if the director would prefer to take as much of the losses as poss in year one and not have more than necessary depreciation hitting the P&L in the following years.