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signwriting on motor vehicles

PoodlePoodle Experienced MentorRegistered Posts: 711
Hi

I have always written off the cost of signwriting of motor vehicles in the year that the cost was incurred.

I recently read an article in 'Taxation' suggesting that this should be capitalised as it enhances the value of an asset.

Any comments would be appreciated

Poodle

Comments

  • BluewednesdayBluewednesday Font Of All Knowledge Registered Posts: 1,624
    I've always written off as advertising, especially as usually the cost is below our capitalisation limit!

    I wouldn't say that it enhances the asset but would be interested in what others think.
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    Revenue expense - advertising.
    It's not enhancing the asset, it's utilising the asset for advertising purposes.
  • cornflowercornflower Well-Known Registered Posts: 129
    I recently had this at work with three of our vans and i put it to advertising expense but our auditors said that it was a capital transaction. When i asked why they said it was because we had the writing done when we bought them the signwriting were additional transactions bringing the vans into the use which my company intends. They never said anything about enhancing the vans.

    Carrie
  • LouiseRLouiseR Feels At Home Registered Posts: 59
    cornflower wrote: »
    I recently had this at work with three of our vans and i put it to advertising expense but our auditors said that it was a capital transaction. When i asked why they said it was because we had the writing done when we bought them the signwriting were additional transactions bringing the vans into the use which my company intends. They never said anything about enhancing the vans.

    Carrie

    We do the same at my work process as a capital transaction, our auditors said the same to me.
  • BluewednesdayBluewednesday Font Of All Knowledge Registered Posts: 1,624
    Ahh but do you have a minimum capitalisation limit? Quite often signwriting comes under that limit so is written off within the year
  • cornflowercornflower Well-Known Registered Posts: 129
    Our company does not capitalise anything under £150 but we had three vans written which cost £900 + VAT. i always thought advertising was expense accounts so put it there but when the auditors came in they had moved it into motor vehicle additions and said that it was fixed assets not advertising.

    I was confused by it all.:laugh:
  • PoodlePoodle Experienced Mentor Registered Posts: 711
    Hi

    I have Just been doing some research on this and I think that I have come to the conclusion that it should be capitalised. BIM 42550 covers advertising and states:

    "Ordinary current expenditure on advertising the trader's goods or services (for example, on newspaper advertisements, distribution of free samples of the goods dealt in) is allowable.
    Where the expenditure is on the erection of permanent hoardings or other apparatus of a durable nature, it is disallowable as capital expenditure."

    I hear what you say Bluewednesday and I ask myself "does it realy matter now with the AIA?" not many of my SME's have £50k to invest on plant in a year and so even if capialised they will be able to claim full relief anyway now.

    Poodle
  • cornflowercornflower Well-Known Registered Posts: 129
    My new boss is a qualified accountant (CIMA) and she said that anything like this should be capitalised. i still do not quite follow it because i thought all advertising was expense but not to worry.

    Carrie.:glare:
  • peugeotpeugeot Experienced Mentor Registered Posts: 624
    Hi,

    The question of signwriting on vans has always prompted the 'capital vs. revenue' question and I can try to explain the logic why your auditors move such expenditure from revenue to capital. The reasons also interlink with tax legislation and GAAP.

    If you look at FRS 15 or the FRSSE paragraphs then the 'cost' of an asset is determined by its actual cost price plus incidental costs of acquisition. Incidental costs of acquisition are also mentioned in Sch 8 of the Companies Act 1985 for small companies which states that such 'incidental costs' are all costs that are directly attributable in getting the asset ready for its intended use. In the case of van(s) signwriting such expenditure (subject to the company's 'de minimis' level for capital expenditure) can be classed as such and written off over the life of the asset.

    Kind regards
    Steve
  • PGMPGM Font Of All Knowledge Registered Posts: 1,954
    Ahh but do you have a minimum capitalisation limit? Quite often signwriting comes under that limit so is written off within the year

    Unless you include it as part of the whole vehicle cost?

    I suppose you could get away with doing it either way. As you could argue the asset would be used regardless of signwriting, which is advertising...
  • PoodlePoodle Experienced Mentor Registered Posts: 711
    peugeot wrote: »
    If you look at FRS 15 or the FRSSE paragraphs then the 'cost' of an asset is determined by its actual cost price plus incidental costs of acquisition. Incidental costs of acquisition are also mentioned in Sch 8 of the Companies Act 1985 for small companies which states that such 'incidental costs' are all costs that are directly attributable in getting the asset ready for its intended use.

    Steve,

    So does this mean that the first tank of fuel, first payment of road fund license and first years insurance premiums should also be capitlised?:001_smile:

    Poodle
  • peugeotpeugeot Experienced Mentor Registered Posts: 624
    Actually Poodle, you would be surprised as to the number of times I've been asked such questions (I know you are being tongue in cheek and it isn't a serious question!!) but I do have an aswer to it!! I've also very recently been asked why employees cannot be capitalised (this was actually a guy who runs his own company but passed intermediate AAT) but I thought I would jot the answers down and with the employee scenario put a smile on your faces.

    The answer to the fuel etc (as you will know) is that they are general overhead and running costs, which cannot be capitalised.

    A client that said all employees should be capitalised based his facts on FRS 15 in that:

    "an asset is a resource controlled by the entity (he said he was the boss!!) as a result of past events (he said this was the job offer) and from which future economic benefits are expected to flow to the entity (he said without staff the company would fail). Pretty naive bases for capitalisation if you ask me.

    A. You can't measure the true worth of a person - so that fails on the 'measurement' criteria - plus how would you "depreciate" the employees; and
    B. You don't actually control the individual - the individual can choose to leave the employment if s/he so wishes so any "depreciation" in (a) above would be a "stab in the dark".

    The joys of the "capital vs. revenue" debate!!

    Steve
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    I think the distinction is whether the signs were written before the vans were brought into use, in which case I can understand the auditors comments (expenditure making new equip ready for use is capitalised, generally - apart from that tank of fuel :lol:)

    If the van is in use and then gets signwritten separately, I'd stick with Advertising.
  • blobbyhblobbyh Font Of All Knowledge Registered Posts: 2,415
    Interested in your reply for capitalising people Steve but you can capitalise some employees can't you, for example a footballer or other athlete?

    They have an asset price aka transfer fee, can be depreciated over their useful life e.g. ten or so years, can return economic benefits, you have them under your control via a purchase agreement (signed contract) and can be disposed of (as some most certainly should be!). This came up in a workplace discussion a few weeks ago and we found some rules regarding sporting businesses but it's Friday evening and I'm too tired to look for them again now!
  • BluewednesdayBluewednesday Font Of All Knowledge Registered Posts: 1,624
    I think you amortise the cost of their contract over it's life as opposed to the people themselves
  • peugeotpeugeot Experienced Mentor Registered Posts: 624
    Yes, Annette is correct - it is the actual footballer's contract that is capitalised and amortised over its life - the contract being measured by virtue of the transfer price. The actual footballer (i.e. the human being) is not capitalised as you cannot place a value on a human being (even though sometimes people do!!!:ohmy:)

    The footballer himself (or as is the case these days, herself) is paid a wage/salary which is, of course, expensed. The client I cited wanted to capitalise wages for some bizarre reason!

    Kind regards
    Steve
  • cornflowercornflower Well-Known Registered Posts: 129
    Even reading my DFS books makes ifrs 15 complicated:huh:

    hope I don't get a question like this in my deecember exam
  • peugeotpeugeot Experienced Mentor Registered Posts: 624
    cornflower wrote: »
    Even reading my DFS books makes ifrs 15 complicated

    Do you not mean IAS 16?

    Regards
    Steve
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