AUTHOR: Katharine Terry
The end of the financial year is when you get the full picture of where your business is at and how it got there from the previous year- and it’s approaching soon!
While it’s an important metric to know, there is more to your business than the Profit and Loss statement; you also need to know about your assets and liabilities.
The state of your liabilities usually emerges from your day-to-day bookkeeping and statements from your financial providers. Your assets, however, may need more attention.
This article is about tangible assets only. Intangible assets, like your people, are not covered in this content (but are still important to be across… stay tuned).
You might need to do an organised stocktake of inventory if your business buys or sells products. under simplified trading stock rules, you may be able to estimate your stock so be sure to check your business obligations.
If you choose to do a stocktake, you must keep the following records to comply with the Australian Taxation Office:
- a list describing each article of stock on hand and its value
- who did the stocktake
- how and when it was done
- who valued the stock and how it was valued.
There are other procedures for primary producers concerning trading stock so be sure to check with your accountant who can advise on this.
- DEPRECIATION OF ASSETS will affect your Profit and Loss. How does this work?
Depreciation recognises that the monetary value of your asset decreases over time. Motor vehicles, machinery and equipment are all depreciating assets which means they have a limited effective life and lose monetary value over their life. The decline in value is recognised as an expense to the business.
Keep an up-to-date asset register to track the book value of your assets and their depreciation over time. This can help you with your business planning by showing you when an asset might need to be replaced.
If you don’t account for depreciation, you will overestimate your profit and if you have plans to sell your business, you should definitely be aware of the current value of your assets. These will be included in the business valuation. Over the ‘life’ of the depreciating asset, the purchase cost is recognised as an expense to the business and low-value asset purchases can be written off immediately.
Temporary arrangements let you claim more of the depreciation expense earlier. These are the instant asset write-off scheme, temporary full expensing, and accelerated depreciation for higher value assets. These measures were introduced to stimulate the economy during the pandemic and have prompted many businesses to update their vehicles or equipment.
Be aware that any remaining value of the asset will be less than your usual depreciation schedule amount in future financial years.
- NON-DEPRECIATING ASSETS may be subject to Capital Gains Tax (CGT). Examples of non-depreciating assets are real estate, and shares and units in a unit trust or managed fund.
You need to keep records of all transactions relating to your CGT assets to be able to work out whether you have made a capital gain or loss from the asset. This includes interest paid, improvements e.g. to a building, and any deductions already claimed for expenses associated with the asset.
Confused? You don’t have to be. If you have accurate and up-to-date records of your stock and other assets, your accountant will be able to navigate the tax complexities. If your record-keeping has been a bit lax, you’ve got time to square things away.
As the business owner, it is important that you understand how your assets may affect your profit and your business value.