ATO Instant Asset Write Off - distorts Balance Sheet!

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ATO Instant Asset Write Off - distorts Balance Sheet!

Hoping someone has some tips!


Our small business operates as a discretionery trust with the trustee earning 100% share for tax purposes (no distribution).  We took advantage of the Instant Asset Write Off this year, purchasing a new van for the business on finance.


Whilst the effect of writing off the full value as a depreciation expense resulted in a great tax refund for the trustee...the result on the balance sheet is distorted in my opinon.


The write down was recorded as a DR to Depreciation expense (6-XXXX) and a corresponding CR to Accumulated Depreciation (1-XXXX), which canclled out the value of the asset on the balance sheet.   So whilst the business owns a new vehicle that has $$ worth, on the balance sheet it appears that the business really has no value in assets.


The concern here is that if we were to approach the bank for another loan, it makes if look as if the business profits were much less for the year (as per ATO Notice of Assessment for taxable income) AND the balance sheet looks terrible.  The expense of writing off full depreciative value is really a 'pie in the sky' thing for the whole purpose of getting reduced income tax....its not a real business cost! 


I came up with a solution to take the expense off my profit and loss and make a notation/comment on the P&L document about the ATO write off and how this was reoconciled for tax purposes as a depreciation expense.    But the problem moving foward would be that I still need to  adjust the value of the vehicle asset on the balance sheet in the coming years to reflect is true value (CR the Asset by the diminished value), but I have no idea which account to enter a corresponding Debit to! Normally depreciation/decline in value would be adjusted via an expense account gradually over the life of the asset.   The ATO's Instant Asset Write off just doesn't suit double entry accounting princples and realistic business operations! Am I missing something here? I hope so. Any tips?


Ultimate Partner
1,858 Posts
Ultimate Partner
Ultimate Partner




Re: ATO Instant Asset Write Off - distorts Balance Sheet!



I suggest showing the Asset on the Balance Sheet with a Written Down Value of nil.


You may like to have Depreciation as a Other Expense.


My understanding is that Bankers "addback" depreciation.



Duncan Smith
Business Advice + Tax
Helping business owners build a better business since 1998
E T 02 9904 3672 7 days

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