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Thread: Capital goods?

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    Red face Capital goods?

    Good day!
    I have a problem in work..Our business offers medical equipment in hospitals in which we have a joint venture.. The primary purpose is to outright sale the equipment but becoz its too expensive we entered into JV's to generate income. Are those equipments considered as capital goods for the purpose of filing 2550M and 2550Q? Those equipments are company's properties subj. for depreciation..
    Also, I would like to ask if our inflows comes from our JV's what will be our cost of service/sales? is it the depreciation and repair and maintenance of the equipment? Thank and i hope you can help me..God bless!

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    Chief viclogic's Avatar
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    Hi just a clarification. What is your company's line of business? Is it selling those medical equipment? If selling those medical equipment is part of your company's ordinary business operation, then those equipment are not capital goods. However, you also mentioned that you are claiming depreciation, which means the equipment remains in your ownership. I think we still need to check the contract agreement between you and your partner company to clarify your question.
    With regard to you question on cost and revenue, there must be a proper matching on the recognition of sales and cost of sales.
    Thus, any cost directly related to your revenue, is considered cost of services.
    BTW, what kind of revenue your company recognize? Sales of equipment, rental of equipment, or other else?
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    our company's line of business is private medical..as of now, we are not selling those equipments..we are entering joint ventures with hospitals and we provide them that particular medical equipment. based on the contract, it is still the asset of the company and any repair will be borne by us..we have our share on the total revenue of the hospital based on the no. of patients who used the equipment..

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    Hi, assuming that your company is not selling the equipment, I think that the equipment should be considered as capital goods for VAT purposes.
    For claiming input tax capital goods are classified into:
    a.Purchases/Importation of Capital Goods (Aggregate Amount Not Exceeding P1 Million) - full input tax can be claimed in full at the month of purchase
    b.Purchases/Importation of Capital Goods (Aggregate Amount Exceeds P1 Million) - this is amortized for 60months or useful life of the asset whichever is shorter.

    For income tax purposes, your cost of sales/services is composed of expenses directly attributable to your revenue. So if you are generating revenue from the use of the equipment, you can recognize the depreciation, repairs on the equipment, salary of the equipment operator and other direct expenses related to the equipment as cost of service.

    This is only my opinion, but for more confirmation, you may inquire directly with the BIR for rulings.
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    yes we are not selling the machines..the previous accountant in our company do not consider it as capital goods based on the returns of 2550m. I would like to amend those returns that's why im trying to inquire on different sources before i finally made a decision.. as per income tax purposes, i have included those items you have enumerated as part of our COS..
    thank you very much for spending time to reply and give ur ideas..i swear, i think i will be one of the most active here! ; )

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    finally, i have confirmed it. our equipments are indeed capital goods.. ; )

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    Chief viclogic's Avatar
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    Quote Originally Posted by dandee View Post
    finally, i have confirmed it. our equipments are indeed capital goods.. ; )
    That's good. Can you share to us where have also confirmed it?
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    i have confirmed with a BIR officer in Agham, Quezon City. I detailed to him our company's business and then he explained that since our equipments are not sold but our source of income and to be depreciated, we should consider it as capital goods for reporting purposes.

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    Thanks for sharing Dandee.
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    I suppose you have been told about the apportionment of the related input taxes on the capital goods depending on the life of the same and the aggregate cost. You might have also been told about the registration of the JV for VAT and accounting purposes. That would be great if they did!
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