How to record a capital asset that doesn’t depreciate

This article explains how to record a capital asset that doesn’t depreciate in FreeAgent. This is likely to be an intangible asset, such as goodwill, a patent or a brand, that you've bought from another business. Typically, all tangible assets depreciate, except for land.

Before you begin

Before you follow the steps outlined below, you should check whether your accountant agrees that the capital asset you plan to record does not depreciate and should be recorded using this process. If you’re not currently working with an accountant, you might want to take a look at FreeAgent’s CoPilot programme.

Recording the capital asset

1. Create a new capital asset type (optional)

If you haven’t already done so, you might want to create a new capital asset type for the asset in question. If this is your first or only intangible asset, for example, you might want to keep it separate from your tangible fixed assets (e.g. computers and equipment). Follow the steps outlined in this article to create a new capital asset type.

2. Explain the purchase payment in your bank account

Once you have an appropriate capital asset type for the asset in question, you need to either:

• locate the transaction in your bank account and explain it (if you use bank feeds or statement uploads )
• record the purchase payment for the asset as a manual bank transaction (if you don't use bank feeds or statement uploads)

Choose the ‘Sundries’ category for the transaction and apply the appropriate VAT percentage. 

3. Post journal entries

Next, you’ll need to post journal entries in order to move the amount out of the ‘Sundries’ account and into your ‘Capital Assets’ account.

Make sure that the journal entries that you post are dated the same day as the purchase of the asset and that they reflect the asset's purchase cost, excluding any VAT that you are reclaiming. 

 Post the journal entries as follows:

• If the asset is allowable for the annual investment allowance (AIA), you should debit account number 602, using the appropriate capital asset type. Add an appropriate description.
• If the asset is not allowable for AIA, you should debit account number ‘601-x [asset type] Brought Forward’, using the appropriate capital asset type, to keep the asset out of the tax calculation. Add an appropriate description.
• Credit ‘280 Sundries’ with an appropriate description. 

Following this process will remove the capital asset from the ‘Sundries’ account and will transfer it into your ‘Capital Assets’ account. FreeAgent won’t post any depreciation for the asset.