Capital Asset - loss making year?

What are the benefits of capitalising assets in a loss making year?

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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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Scalloway Castle
By scalloway
24th Mar 2018 08:14

What was the value of the assets?

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RLI
By lionofludesch
24th Mar 2018 10:35

You need to give us more.

Chances are it's not a tax thing but there's not enough information.

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By Accountant A
24th Mar 2018 12:20

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.

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me.jpg
By clark.hall
25th Mar 2018 13:32

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.

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By Tank Girl
26th Mar 2018 18:28

Thanks for the comments. It's £20k if that helps?

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Replying to Tank Girl:
RLI
By lionofludesch
26th Mar 2018 18:31

I'd need a very good argument to be put to me to write that off as incurred.

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