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Phones, drones and automobiles: an update to fixed assets

Posted 2 months ago in Product by Christian Newman

Nearly all small businesses have fixed assets. Whether that be phones, drones, automobiles, or everyday items such as computers and office equipment, everything needs to be accounted for. We know Australia has some of the most complex fixed asset rules and requirements in the world. That’s why we came up with a simple solution.

Xero now has a fully fledged, integrated fixed asset solution built right into Xero to help advisors calculate tax depreciation. The new enhancements let you manage tax depreciation, as well as pooling for assets. It means you no longer need to use separate fixed asset software to calculate tax values and manage pools.

Because fixed assets is built right into Xero, it makes year end even more efficient. There’s no need to transfer data from other software or spreadsheets to calculate tax depreciation. No double handling, no discrepancies, no more hassle.

Save time and money

With efficiency comes cost saving. Not only in time, but also on dumping the additional software costs. Xero fixed assets is fully integrated with, and provided as part of Xero Business and Xero Partner Edition plans at no extra cost.

We listened to your requests

Tax values and pooling is a top feature request from the Australian Xero community. With tax and pooling in fixed assets, you can use Xero fixed assets to manage not only your client’s book values and depreciation, but other associated depreciation needs including tax and pooling. There are also new reports. These include pool summary, tax depreciation and tax disposal reports.

When is this available?

We are rolling out these enhancement in a staged release over the next four weeks.

For any new Xero organisations, or for those not already using fixed assets, tax and pooling will be available immediately.

For existing small businesses with 20 or less registered assets, that are already using fixed assets, the new functionality will be available over the next few weeks.

Over 70% of Australian Xero organisations have less than 20 assets. Therefore this release is best suited to those types of businesses. However, we know that many of you have clients with lots of assets. We understand the pain of updating 50 or 100 assets manually. That’s why our next release will focus on bulk actions. It will provide import functions for new assets to include tax and pooling, bulk registration of the new assets for tax and pooling, update existing assets to add tax or pooling, and help you convert from existing software you may be using as well as additional reporting.

 

For more detail on setting up tax and pooling for your client’s fixed assets, please check out our Help Centre for more information.

9 comments

David Walston
February 17, 2017 at 5.57 am

Are these enhancements coming to the USA as well?

Christian Newman
February 19, 2017 at 2.55 pm

Hi David,

We haven’t scoped the full requirements for the US or UK as yet, however it is on our radar. As you may be aware, we do have Fixed Assets built into Xero without Pooling and Tax depreciation in the US. We will keep you informed via the blog of any progress.

Matthew
February 28, 2017 at 3.34 pm

Fantastic this is a huge time saver.

John Carson
March 3, 2017 at 2.28 pm

These changes are very welcome.

A client business has a car with a purchase price that was above the cost limit for depreciation (cost was around $90,000 and the maximum depreciable amount was $57,466).

Under the new dialogs, there is a Cost limit field hiding under “Show more options”, but it doesn’t seem possible to type into it. The (financial accounts) depreciation on the car commenced before the Tax Start Date, which is perhaps the reason for this. However, changing the depreciation start date to match the tax start date doesn’t make the Cost limit field available.

The only available option seems to be to enter an accumulated depreciation value at the tax start date that yields the desired tax value of the car at the tax start date. This is not the actual accumulated depreciation, just something that gives the desired answer for tax value. Is that the way to handle the problem?

John Carson
March 3, 2017 at 6.42 pm

In the end, I handled it differently. I

1. Reversed the disposal of the old car (the existence of this disposal was upsetting Xero when it came to setting the tax start date)
2. Wound back depreciation to the start of the financial year in which the new car was bought
3. Started tax accounting at the beginning of the financial year in which the new car was bought and made the appropriate cost limit entry for the new car
4. Ran depreciation forward
5. Reinstated the disposal.

It’s all good now.

John Carson
March 3, 2017 at 9.55 pm

Update: There appears to be a bug in this.

To keep the numbers simple, suppose that you buy a car for $100,000 but that the maximum value on which you can claim depreciation is $50,000. Suppose that for both financial and tax purposes the effective life is 5 years, so you record 20% per year straight line depreciation.

After 5 years, the item will be fully depreciated, so a disposal for $0 will involve neither a gain nor loss. The way that Xero handles it, however, is that no gain or loss is registered for Book purposes, but a loss of $50,000 is registered for Tax purposes.

The reason this happens as follows. Xero calculates tax depreciation using the cost maximum of $50,000. This gives $10,000 depreciation per year, which is fine. However, Xero calculates the tax carrying value of the car by taking the full purchase price of $100,000 and deducting tax depreciation. Thus Xero reckons that the tax carrying value of the car after 5 years is $50,000 ($100,000 purchase price less $50,000 tax depreciation), so a disposal for zero represents a loss of $50,000.

What should happen, of course, is that the tax carrying value should be the cost limit (more generally, the smaller of the cost limit and the purchase price) minus the tax depreciation. In this example, the tax carrying value would be $50,000 minus $50,000, i.e., $0.

There is an additional problem where the proceeds from the disposal are not zero. For tax balancing adjustment purposes, the proceeds are not the price at which the car was sold, but the fraction of this price corresponding to the ratio of the cost limit and the original purchase price. In this case the cost limit was 1/2 the purchase price, so if the car was sold for $40,000, then proceeds for the purposes of a tax balancing adjustment are $20,000.

Strictly speaking, the applicable ratio to apply to sale proceeds is:

(cost limit + second element costs) / total cost of the car.

Ryan Strous
March 8, 2017 at 6.47 pm

Hi John

Thanks for your feedback. The product team are currently reviewing your response . Please can you log this query with support@xero.com (you can cc ryan.strous@xero.com in this particular case). This way you will have logged a formal query and we can track it internally and ensure it gets resolved.

Kind regards
Ryan Strous

Jo Rowell
April 4, 2017 at 12.40 pm

Is there any more detailed help on the set up of the pooled assets? The help section in Xero Help only seems to go so far. I have set up the general pool SBE but can’t add an asset until 1 July 17…

Ryan Strous
April 10, 2017 at 11.52 am

Hi Jo

Are you trying to transfer an asset to a pool? Or add the asset to the pool (this assumes from day of purchase asset belonged in pool)?. Asset’s can’t be transferred in the same financial year as the assets Tax Depreciation Start Date. If the asset needs to be pooled from purchase, under the options button click edit instead of transfer and change the Tax Depreciation Method to Pooled.

If this is not the solution to your issue our support team will definitely be able to assist you. Feel free to get in touch (support@xero.com)

Cheers
Ryan

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