ACCOUNTING AND TAXATION OF LEASING CONTRACTS

CURRENT AND CAPITAL REPAIRS OF LEASE ASSETS

The rouuer of repoiriug the leosed goods oud recoveriug the reloted costs is estoblished bç the porties iu the leosiug coutroct.

If the repairs are carried out by the entity, in whose balance sheet, the goods are recorded (with the lessor – in the case of operational leasing, with the lessee – in the case of financial leasing), the repair costs are accounted for in the same way as in the case of own fixed assets.

If the repairs are carried out by the entity, in whose balance sheet, the goods are not recorded (with the lessee – in the case of operational leasing), the repair costs are accounted for according to the source of their recovery:

• on account of the lessor’s leasing payments,
• on account of the lessee’s own means,
• on account of the lessor’s own means.

Repairs on account of leasing payments

The lessee’s repair of the leased asset on account of the decrease in leasing payments is accounted for as the provision of services. In this case, the actual cost of the repair works accepted by the lessor is settled to current expenses in exchange for the credit of the calculation accounts or current anticipated expenses, at the same time the sale value of the repair works handed over to the lessor is reflected as a concomitant increase of current receivables and revenues.

The lessor will account for the amount of the repair expenses in the debit of the current expenses account and the credit of the debt account.

Subsequently, both the lessee and the lessor are transferred to the account (mutual compensation) of the current receivables and current debts.

Repairs at the expense of the tenant’s own means

According to the provisions of SNC INC, item 60, the subsequent costs that contribute to the increase of the expected economic benefits from the use of tangible fixed assets that are not recorded in the entity’s balance sheet, are reflected as separate accounting objects. In particular, this group of objects includes the subsequent costs incurred by the lessee (lessee) on his own account with the consent of the lessor (lessor) in respect of the objects received in operational leasing (lease/lease).

Spare parts and other materials obtained as a result of the repair of the leased asset and which are not to be returned to the lessor, are measured at fair value and are recorded as an increase in inventories and a decrease in tangible fixed assets.

The repair costs incurred by the lessee, which according to the provisions of SNC INC cannot be capitalized (they do not contribute to the increase of the economic benefits), are settled at current costs or expenses depending on the destination and place of use of the leased asset in exchange for the reduction of the anticipated expenses (costs of the ancillary activity).

Example

In 202N, the entity incurred the following expenses related to the maintenance, servicing and repair of fixed assets, reflected in the balance sheet: maintenance and technical service of the Mercedes car – 6 280 lei;

capital repair of the administrative building – 947 000 lei. The renovation works were completed on May 16, 202N and, as a result, it was established that the duration of use of the building increased by 7 years.

According to the data, for example, expenses related to the maintenance and upkeep of cars, as well as current repairs of fixed assets, carried out for the purpose of entrepreneurial activity are deductible for tax purposes.

As for the expenses for the capital repair of administrative buildings, the procedure for deducting them is carried out by calculating the depreciation, starting with the following month after the completion of the repair works.

According to the example, the capitalized amount of 947,000 lei from June 202N will increase the depreciable value of the building.

Maintenance and repair of rented fixed assets

‘Leased fixed assets’ include fixed assets received by the entity for use and which are subject to the limitation of repair costs. Such assets include fixed assets that can be depreciated for tax purposes, i.e. investments in fixed assets that are used by the entity in its activity and that are subject to a contract of:

• operational leasing
• rent
• concession
• Rental
• commodity
• Sublease
• other types of contracts.

The specificity of the so-called “investments in fixed assets” is that they are recorded in off- balance sheet accounts, and the repair costs, according to the above contracts, are borne by the lessee, lessee or concessionaire.