When additional costs are incurred in improving an existing asset, there are implications for depreciation purposes. This support note explains these and how they are handled in AssetManager Pro. 

An asset's cost is composed of two elements:

• The first element of cost, which is usually the purchase price and any other amounts paid to transport or install the asset; and
  
  
• The second element of cost, which is any capital expenditure incurred after that time, for example, the cost of improving the asset.

The second element of cost will take into account any unclaimable GST.

If you have any queries as to whether expenditure qualifies as either a first or second element of cost, please refer to your accountant or the Australian Taxation Office.

In AssetManager Pro, the first element of cost is entered using the Asset Information window. The second element of cost is entered using the Asset Transaction window.

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How do I enter a Second Element of Cost?

1. Go to the Transactions command centre and click Asset Transactions. The AssetTransaction window appears.
   
   
   
   
2. Click the search icon  in the Asset ID field to select the asset you want.
   
   The second element of cost takes effect, for the purpose of all calculations, from:
   
    
   • the acquisition date if it is incurred in the year of acquisition, or  
     
     
   • the first day of the current year if it is incurred at any time in a subsequent year.
     
     

   The Date field defaults to the respective date.

3. Select Second Element of Cost for Pooled Asset or Second Element of Cost from the Type drop-down list. The book and tax details of the asset for this transaction type are displayed.
   
   Second Element of Cost for Pooled Asset 
   
   
   
   
   Second Element of Cost (Not Pooled)
   
   
   
   
   An explanation of the fields is provided below:
   
   

   Book Fields
   Acquisition Cost	The original cost of purchasing and preparing the asset for use.
   Open Written Down Value	The depreciated value of the asset for book purposes. It represents the difference between the acquisition cost of the asset and the depreciation calculated to date.
   Second Element Cost YTD	The value of other second element costs added in the year to date. This will not be visible for pooled assets. The value of the field is visible only after you save the transaction.
   Second Element Cost	The value of the second element cost being added to the asset in this transaction. This will always be the tax exclusive value.
   New Cost of Asset	The sum of the Acquisition Cost and all second element costs.
   New Open Written Down Value	The sum of the Open Written Down Value and the Second Element Cost added in this transaction.

   
   
   

   Tax Fields
   Balance of Pool	The current balance of the pool to which the asset belongs.
   Acquisition Cost	The original cost of purchasing and preparing the asset for use.
   Opening Adjustable Value	The Acquisition Cost reduced by the car limit, if applicable, less the depreciation deducted to date.
   Second Element Cost YTD	The value of other second element costs added to the value of the asset in the year to date. This will not be visible for pooled assets. The value of the field is visible only after you save the transaction.
   Second Element Cost	The value of the second element cost being added to the asset in this transaction. This will always be the tax exclusive value.
   Private Use Adjustment	The amount that the Second Element Cost is reduced by due to the private use percentage applied to the asset.
   Depreciation on SEC	The depreciation applicable to the second element cost.
   Closing Balance of Pool	The Balance of pool amount plus the net value of the second element cost.
   New Cost of Asset	The sum of the Acquisition Cost and all second element costs.
   New Opening Adjustable Value	The sum of the Opening Adjustable Value and the second element cost added in this transaction.

4. Enter all additional information to help you identify the specific purpose of the transaction in the Note field.

5. Enter the new capital expenditure in the Second Element of Cost field.

6. Click Journals if you want to preview the journal entries that will be posted to the asset or pool. TheTransaction Journal window appears.

7. Click OK to confirm the change in the private use percentage.

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What effect does a Second Element of Cost have on my depreciation calculations?

If the Second Element of Cost was added in the year of acquisition, it is treated as being acquired as at the date of the original acquisition. Depreciation will then be calculated on the combined cost.

If the Second Element of Cost was added in a subsequent financial year, the value is added to the opening adjustable value of the asset. The new opening adjustable value becomes the basis for subsequent depreciation calculations.

If an asset depreciated with the Prime Cost method has a Second Element of Cost added to it, the Remaining Effective Life formula for calculating depreciation will then apply.

 

What happens when I apply a Second Element of Cost to an asset in a Pool?

A Second Element of Cost cannot be added to a Low Value Pool asset or a Software Development Pool asset.

For assets in the General STS Pool or Long Life STS Pool, a Second Element of Cost can be added.

If the Second Element of Cost is added in the year of acquisition, it is added to the relevant pool and depreciated according to the rules of the pool.

If the Second Element of Cost is added in a subsequent year, it is added to the relevant pool and depreciated as if it was a new asset acquired in that year.