Accounting for VAT transition financing lease of fixed assets

Extending the scope of VAT deduction in the Northeast region about the regulations on the accounting treatment (hereinafter the regulations) to taxpayers in the VAT transformation through purchase, donation, receive accounting of fixed assets investment process, obtained by processing has made clear, but for taxpayers to finance leases acquired fixed assets accounting treatment is not provided, move this article provide a brief discussion.

??Northeast area expanded VAT arrived buckle range several problem of provisions under provisions, taxpayers through financing leasing way made of fixed assets, its purchase tax can like through procurement, and accept donation, and accept investment, and self-made, way made of fixed assets as by provisions for arrived buckle, but premise conditions is rental party must has by national tax General on financing leasing business levy circulation tax problem of notification under (IRS letter [2000]514,) of provisions pay has VAT. By IRS letter [2000]514, text and later publishing of national tax General on financing leasing business levy circulation tax problem of supplementary notification under (IRS letter [2000]909,) of provisions, on after original foreign trade economic cooperation Department approved of operating financing leasing business of foreign investment enterprise and foreign enterprise carried out of financing leasing business, and by people?s Bank of China approved of operating financing leasing business of within funded enterprise carried out of financing leasing business, regardless of leasing of goods of ownership is transfer to tenant party, are by People?s Republic of China business tax interim regulations under of about provisions levy business tax, not levy VAT. In addition, other units in the leasing business, if the transfer of ownership of the goods leased to the lessee, the value added tax, sales tax is not charged; if the lessee does not transfer ownership to the lessee of goods, you charge sales tax, no VAT.

??Can be seen from the above provisions, taxpayer?s fixed assets leased through finance leases way, only when a transfer of ownership from lessor to lessee, will have problems fixed asset input tax deduction, would generate taxpayers in the VAT transformation through the accounting treatment of financial leasing acquired fixed assets. Therefore, this article only discusses the end of the lease, transfer of ownership of fixed assets. The author believes that VAT taxpayers through finance leases acquired in the transformation of the fixed asset can be carried out through the following accounting treatment.

??If taxpayers financing rent into fixed assets of total is greater than taxpayers assets total of 30%, in leasing began day, taxpayers should by leasing began day leasing assets of original book value and minimum leasing payment amount of are value both in the of lower who, take remember ?fixed assets?financing rent into fixed assets? subjects, by its difference, take remember ?not confirmed financing costs? subjects, credit remember ?long-term meet paragraph?meet financing leasing paragraph? subjects; if taxpayers financing rent into fixed assets of total equal to or is less than taxpayers assets total of 30% (containing 30%), in leasing began day, taxpayers can by minimum leasing payment amount, take remember ?fixed assets?financing rent into fixed assets? subjects, credit remember ?long-term meet paragraph?meet financing leasing paragraph? subjects.

??In leasing process in the, taxpayers periodical meter reference depreciation, take remember ?management costs?, and ?manufacturing costs?,, credit remember ?Trojan depreciation?; by leasing contract provisions of payment period payment, take remember ?long-term meet paragraph?meet financing leasing paragraph?, credit remember ?bank deposits?; by reasonable method assessed not confirmed financing costs, take remember ?financial costs?, credit remember ?not confirmed financing costs?. Leasing expires, in taxpayers left purchased leasing of fixed assets Shi, under VAT dedicated invoice Shang annotated of VAT amount, take remember ?should tax gold?should arrived buckle fixed assets VAT (fixed assets purchase tax)? subjects, by ?fixed assets?financing rent into fixed assets? of account balance and the left purchased paragraph, take remember ?fixed assets? subjects, by meet or actual paid amount, credit remember ?bank deposits?, and ?meet accounts payable?, subjects, while closing ?fixed assets?financing rent into fixed assets? subjects balance.

??Where ?gold ? fixed assets be deducted the VAT tax (fixed asset input tax)? = (?fixed assets ? fixed assets under financing lease? + account balances under hire purchase) x tax rate.
Example: on July 9, 2004, a company financed by leasing company b production line article does not need to install, the remaining useful life of the line for 4 years, the original book value of $ 550 000. Lease from July 9, 2004 to July 9, 2007, a total of three years, once every six months to pay the rent, paying $ 100 000 at a time, annual interest rate of 8% the contract of lease, the end of the lease, to $ 50 000 of a company purchased the line.
??1. fixed assets under financing lease assumptions a company occupies a total assets of the company 20%.
??Accounting:
??The inception of the lease:
??By: ? fixed assets financed by leasing assets of 600 000
???Credit: long-term Payables?finance lease payable 600 000
??Monthly depreciation (straight-line method):
??By: manufacturing costs 16 666.67
???Credit: accumulated depreciation 16 666.67
??Every six months to pay lease:
??By: Long term payable?finance lease payable 100 000
???Credit: bank deposits 100 000
??When the end of the lease-purchase product line:
??By: fixed assets of 650 000
????Fixed assets tax payable-should be deducted the VAT
????(Fixed asset input tax) 110
???Credit: ? fixed assets financed by leasing assets of 600 000
?????Bank Deposit 160 500

??2. fixed assets under financing lease assumptions a company occupies a total assets of the company 40%.
??First determine the rented fixed asset record:
??The rent of the minimum lease payments = and + lessee guarantee of the residual value
?????????=100 000?6+0
?????????=600 000 (USD)
??Present value of minimum lease payments =100 000x (P/A,4%,6)
???????????=100 000?5.2421
???????????=524 210 (USD)
??Present value of minimum lease payments and $ 524 ??Unrecognised finance charge = 210=25 550 (Yuan)
??Accounting:
??The inception of the lease:
??By: 524 fixed assets ? fixed assets under financing lease 210
????Unrecognised finance charge 25 790
???Credit: long-term Payables--finance lease payable 550 000
??Monthly depreciation (straight-line method):
??By: manufacturing costs 14 561.39
???Credit: accumulated depreciation 14
??Assessed unrecognised finance charge per month (straight-line method):
??Take: financial expenses 716.39
???Credit: unrecognised finance charge 716..39
??Every six months to pay lease:
??By: Long term payable--finance lease payable 100 000
???Credit: bank deposits 100 000
??When the end of the lease-purchase product line:
??By: fixed assets 574 210
????Fixed assets tax payable-should be deducted the VAT
????(Fixed asset input tax) 97
???Credit: fixed assets ? fixed assets under financing lease 524 210
?????Bank deposits 147

Source: http://chinawestproducts.com/08/10/accounting-vat-transition-financing-lease-fixed-assets/

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