how do you account for VAT on non-current assets for cost, depreciation and disposal?

Shelby111
Shelby111 Registered Posts: 21 New contributor 🐸
I'm so confused with when to include vat on the cost, depreciation and disposal - any help would be gratefully received.

I'm particularly confused when a question gives the original cost of the asset 'excluding vat' then the disposal proceeds 'including vat' , what does that mean for vat on cost and depreciation?

Also what about vehicles, what do we do with vat for depreciation and disposal of vehicles and does it apply to all types of vehicles? (cars, delivery vans, trucks etc?)

Comments

  • Krisso
    Krisso Registered Posts: 124 Dedicated contributor 🦉
    T accounts will help you break this down.

    Have your assets, depreciation, disposal, vat and bank accounts setup. I would suggest in excel so you can follow it though on the screen and also do your calculations.

    Usually there is only vat on machinery and things like delivery vehicles, cars usually would be gross not net.

    Disposal of an asset would debit the bank T account in full and then net credit to the disposal account and net vat credit to the vat account (if vat is involved)
  • Shelby111
    Shelby111 Registered Posts: 21 New contributor 🐸
    Krisso said:

    T accounts will help you break this down.

    Have your assets, depreciation, disposal, vat and bank accounts setup. I would suggest in excel so you can follow it though on the screen and also do your calculations.

    Usually there is only vat on machinery and things like delivery vehicles, cars usually would be gross not net.

    Disposal of an asset would debit the bank T account in full and then net credit to the disposal account and net vat credit to the vat account (if vat is involved)

    Thank you, that makes sense to me now. I am getting confused by some of the practice questions I think, such as:

    A vehicle which cost £17,000 (net of VAT) is being depreciated at 20 per cent per year using the diminishing (reducing) balance method.
    What will be the amount of the depreciation charge in the third year?

    The answer was £2176 which is calculated leaving the vat off, but we are told vehicles are an exception to the rule and should be entered as cost including vat as it cant be reclaimed.

    Seems it depends how they ask the question if we should leave it off or not.
  • douglasstroud
    douglasstroud Registered Posts: 295 Dedicated contributor 🦉
    ‘Who’ says vehicles are an exception?
    Vehicles are not only cars they can be commercial vehicles where VAT can be claimed back!
  • Shelby111
    Shelby111 Registered Posts: 21 New contributor 🐸

    ‘Who’ says vehicles are an exception?
    Vehicles are not only cars they can be commercial vehicles where VAT can be claimed back!

    Is that where I'm getting confused then? Are cars an exception but commercial vehicles are not?

    So cars cant have vat reclaimed, but commercial vehicles can?

    It was in my tutorial that there was some sort of exception with cars/vehicles but I obviously missed what it was :/
  • Pian32
    Pian32 Registered Posts: 474 Dedicated contributor 🦉
    Cars are generally not claimable or chargable for VAT purposes (there are some exceptions to this), vans, lorries are claimable.

    This means when doing the purchase cost for FA a car will be full price including VAT but vans and lorries will be net of VAT.
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  • Shelby111
    Shelby111 Registered Posts: 21 New contributor 🐸
    Pian32 said:

    Cars are generally not claimable or chargable for VAT purposes (there are some exceptions to this), vans, lorries are claimable.

    This means when doing the purchase cost for FA a car will be full price including VAT but vans and lorries will be net of VAT.

    Thank you for the info, that helps a lot :)
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