If fixed assets are ready for use but have not yet been produced or finished products have not been created, can depreciation costs be included in deductible expenses?

If fixed assets are ready for use but have not been produced or created finished products, can depreciation costs be included in deductible costs? Pursuant to Article 6 of Circular 78/2014/TT-BTC, amended by Article 4 of Circular 96/2015/TT-BTC, stipulates:

Deductible and non-deductible expenses when determining taxable income

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2. Expenses that are not deductible when determining taxable income include:

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2.2. Depreciation expenses for fixed assets fall into one of the following cases:

a) Depreciation expenses for fixed assets not used for production and trading of goods and services.

Only fixed assets serving employees working at the enterprise such as: mid-shift motel, mid-shift cafeteria, changing room, restroom, medical room or station for medical examination and treatment, training and vocational facilities, libraries, kindergartens, sports areas and equipment and furniture that qualify as fixed assets installed in the above projects; clean water tank, garage; shuttle buses for workers, direct housing for workers; The cost of building facilities, the cost of purchasing machines and equipment that are fixed assets used to organize vocational education activities are depreciated and included in deductible costs when determining taxable income.

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Accordingly, if a fixed asset is machinery and equipment that has not been used for production or business activities, the depreciation cost of this asset is not included in deductible expenses.

How is the historical cost of purchased tangible fixed assets determined?

Determining the original price of purchased tangible fixed assets is carried out according to Point a, Clause 1, Article 4 of Circular 45/2013/TT-BTC as follows:

Original cost of purchased tangible fixed assets (including new and used purchases): is the actual purchase price to be paid plus (+) taxes (excluding refundable taxes), directly related costs to be paid up to the time the fixed assets are put into a ready-to-use state such as:

Loan interest arises during the investment and purchase of fixed assets;

Shipping and handling costs;

Upgrade costs;

Installation and test running costs;

Registration fees;

Other directly related costs.

In case of tangible fixed assets purchased on deferred payment or installments, the original price of the fixed asset is the purchase price paid immediately at the time of purchase plus (+) taxes (excluding refundable taxes), directly related costs that must be paid up to the time the fixed asset is put into a ready-to-use state such as:

Shipping and handling costs;

Upgrade costs;

Installation and test running costs;

Registration fee (if any).

In case of purchasing tangible fixed assets such as houses and architectural objects attached to land use rights, the value of land use rights must be determined separately and recorded as intangible fixed assets if they meet the standards prescribed in Point dd Clause 2 of this Article. As for tangible fixed assets such as houses and architectural objects, the original price is the actual purchase price to be paid plus (+) expenses directly related to putting the tangible fixed assets into use.

In case, after purchasing tangible fixed assets such as houses and architectural objects attached to land use rights, the enterprise dismantles or destroys them to build a new one, the value of land use rights must be determined separately and recorded as intangible fixed assets if it meets the standards prescribed in Point d, Clause 2 of this Article; The original price of newly constructed fixed assets is determined as the final settlement price of construction investment works according to the provisions of the current Investment and Construction Management Regulations. Assets removed or destroyed are accounted for according to current regulations on liquidation of fixed assets.

How is investment in upgrading and repairing fixed assets regulated?

Investment in upgrading and repairing fixed assets is regulated in Article 7 of Circular 45/2013/TT-BTC as follows:

The costs an enterprise spends to invest in upgrading fixed assets are reflected in an increase in the original price of that fixed asset. These costs must not be accounted for in production and business expenses during the period.

Fixed asset repair costs are not calculated to increase the original price of fixed assets but are directly accounted for or gradually allocated to business expenses during the period, but not exceeding 3 years.

For fixed assets whose repairs are cyclical, businesses are allowed to deduct estimated repair costs in advance into annual expenses. If the actual amount spent on repairing fixed assets is greater than the estimated amount, the enterprise can add this difference to reasonable costs. If the actual amount spent on repairing fixed assets is less than the deducted amount, the difference is accounted for as a reduction in business expenses in the period.

– Expenses related to intangible fixed assets that arise after initial recognition and are assessed with certainty, increasing the economic benefits of intangible fixed assets compared to the initial operating level, are reflected as an increase in the historical cost of the fixed asset. Other costs related to intangible fixed assets that arise after initial recognition are accounted for in production and business expenses.