COMPANIES’ OWN CARS TAX ACCOUNTING POLICY-MAKING MODEL

Abstract

One of the long-term assets’ group is cars. The accounting policy of cars is relevant to the overall accounting policy of the company, as the value of some companies’ own cars often accounts for a significant portion of the company’s total available assets. The choice of corporate accounting policies is closely related to tax accounting requirements and tax burden optimization. By formulating the company's accounting policy considering the relevant laws and accounting standards, not only can the company properly account for its cars, but also at the same time save – reduce in tax burden.

Research object is the corporate’s own cars accounting policy. Research purpose is to develop and test the model to help companies choose their own cars tax accounting policy. To achieve this purpose, the following tasks are set: 1) to examine the relationship of companies’ own cars accounting policy choices with the tax calculation requirements; 2) to develop the companies’ own cars tax accounting policy-making model; 3) to test the application of the created model in the Lithuanian company. The main research methods are induction, comparative analysis of accounting and taxes on long-term assets accounting laws; graphical representation, modelling, and logical analysis are used to form the model of cars tax accounting policy-making; case study, synthesis, generalization, used for model verification.

Companies have the opportunity to combine financial and tax accounting objectives in practice, i.e. financial statements presenting a true and fair view of financial position and performance and to reduce the tax burden. Differences between financial and tax accounting arise from the determination of the recognition cost of cars, non-refundable VAT, choice of depreciation methods, methods of beginning and end of depreciation, useful life, residual value, choice of accounting method, interpretation of repair and operating costs. Depending on the choice of certain accounting methods or estimates, the accounting and financial statements may present higher or lower financial and taxable profits.

The correct harmonization of the regulation of the 12th BAS and the Law on Profit Tax determines the successful choice of cars accounting methodology, allows the company to use all the possibilities provided by law to reduce the amount of paid taxes. The created model of corporate cars tax accounting policy-making complements the already existing long-term assets’ accounting policy concept.

After the case analysis in the Ltd. ABC, it has been established that the application of the relevant elements of the accounting policy may lead to a profit-increasing or profit-reducing accounting policy in the company. The most important element of accounting policy, which in particular led to a change in net profit, is the depreciation expense of cars. The biggest negative impact on the company's net profit (4.3 percent) was obtained by applying the double-diminishing value method instead of linear depreciation method. The company's operating result increased 1.8 percent by including repair costs in the acquisition cost and by extending the useful life by 2 years. Extending the useful life of passenger cars to 12 years and trucks to 8 years increases net profit by 1.6 percent. After evaluating the results of the application of the model, it can be stated that the developed company's own cars tax accounting policy-making model has been confirmed. The model can help companies not only to formulate their own cars accounting policies, but also to reduce the tax burden. It can be assumed that the model is suitable for both small and large companies engaged in a variety of activities, as cars are operated by every company.