Thursday, November 23 2017 17:02
Naira Badalian

Armenia establishes new approaches in assessing the capital and current costs of economic entities

Armenia establishes new approaches in assessing the capital and current costs of economic entities

ArmInfo.  Armenia establishes  new approaches in assessing the capital and current costs of economic  entities. Corresponding changes to the Armenian government's decree  of 11 April 2000 were approved by the Cabinet of Ministers on 23  November.

As the Minister of Finance Vardan Aramyan pointed out, the government  decision of 2000 defined the concept of "capital expenditures".  Meanwhile, during meetings with the private sector, it became clear  that this definition is extremely controversial, since the current  legal regulation establishes that all those expenses that lead to a  change in the state of fixed assets are considered capital  expenditures.

According to the minister, it is not completely clear what the  definition means. "For example, if we repair some part of the  administrative building, does this mean that we are changing the  state of the fixed asset - are we carrying out capital expenditures,  or is it still ongoing repairs. And this implies various tax  liabilities," Aramyan explained, adding that in the first case, the  funds are capitalized and depreciated, and current repairs are  recognized directly as expenses.

In practice, as Vardan Aramyan noted, this regulation leads to  numerous disputes. But, since the policy of the Ministry of Finance  is aimed at developing a clear policy and concretizing the norms of  administration, the department suggests listening to international  accounting and financial reporting standards. Therefore, a more  simplified rule is proposed, which states that capital expenditures  are all those costs that lead to the replacement of part or component  of the state of fixed assets.

In addition, the Ministry of Finance, while improving the standard,  also laid quantitative indicators in the project. All those expenses  that make up more than 5% of the original value of fixed assets, or  the costs in excess of 15% of the initial value of fixed assets, the  financial department is proposed to be considered as capital. "In  this way, we introduce specifics, and significantly simplify the life  of economic entities," concluded the head of the Armenian Ministry of  Finance.

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