Low-value and fixed assets: how to account for them correctly

Correctly distinguishing between low-value and fixed assets determines whether an acquisition is expensed all at once or gradually through depreciation. A mistake at the outset carries through the entire period in which the asset is used.

Where the threshold lies

Low-value and fixed assets differ mainly in their acquisition cost and useful life. Fixed assets serve the company for several years and their cost exceeds a set threshold; low-value assets are cheaper or have a shorter lifespan.

It is precisely this threshold that determines how the asset is accounted for. That is why it is important to assess each item correctly as soon as it is acquired, not after the fact.

Fixed assets

Tangible and intangible fixed assets are put into use and depreciated over several years. The acquisition cost also includes costs related to the acquisition, for example transport, customs duty or installation.

• machinery, equipment and vehicles
• buildings and structures
• software and licences with a longer lifespan

Low-value assets

Low-value assets are generally expensed at the time of acquisition or when they are put into use. However, a company may also choose to depreciate them gradually if that better reflects how they are actually used.

Set out the approach you have chosen in an internal policy and apply it consistently. This way you avoid inconsistency and any questions during an audit.

Records of low-value assets

Even though low-value assets are expensed all at once, it is worth keeping them in operational records (operatívna evidencia). This gives you an overview of what the company actually owns and makes both stocktaking and any audit easier.

• a list of low-value assets and their location
• the persons responsible for individual items
• records when assets are disposed of

Common mistakes

Typical mistakes include failing to include related costs in the acquisition cost or classifying an asset incorrectly in relation to the threshold. Both distort costs as well as the tax base.

Check the specific price thresholds that determine the classification for the current period, as they may change. In unclear cases, consult an accountant before you book the item.

Technical improvement of assets

Technical improvement, meaning expenditure on modernising, reconstructing or extending an existing asset, deserves special attention. Such expenditure is not treated as an ordinary repair.

While an ordinary repair is expensed directly, a technical improvement above the set threshold increases the entry price of the asset and is depreciated. Distinguishing between a repair and an improvement is therefore important; if anything is unclear, discuss it with an accountant.

Impact on the tax base

The way an asset is classified has a direct effect on when and in what amount the expenditure is reflected in costs. Low-value assets reduce the tax base all at once; fixed assets do so gradually through depreciation over several years.

• low-value assets – generally expensed all at once
• fixed assets – gradually through depreciation
• technical improvement – increases the entry price

An internal policy as an aid

To make the classification of assets consistent and defensible, it is worth setting up an internal policy. In it, you define how the company assesses low-value and fixed assets and how it approaches keeping records of them.

A policy like this saves time when deciding on individual items and also serves as evidence of a consistent approach during an audit. It is a simple document, but in practice it prevents a great deal of uncertainty.

Related articles: Cloud in accounting: benefits, risks and what to watch out for, Depreciation of assets: straight-line vs. accelerated depreciation, Valuation allowances and provisions: when to create them.

Frequently asked questions

How do I know whether an asset is a low-value or a fixed asset?

The deciding factors are the acquisition cost and the useful life. If the cost exceeds the set threshold and the asset serves for several years, it is a fixed asset that is depreciated. Check the specific threshold for the period in question.

Do I have to keep records of low-value assets if they are expensed straight away?

For accounting purposes, low-value assets can be expensed all at once, but keeping operational records of them is strongly recommended. This gives you an overview of the company’s assets, which helps both with stocktaking and with defending your position during an audit.