DMA in the budget sector

Accounting of fixed tangible assets in budgetary organizations

Definition
The accounting of fixed tangible assets in budget enterprises is carried out on the basis of NSS 16/2002 and the instructions of the Directorate “State Treasure” of the Ministry of Finance. IAS 16 defines tangible fixed assets as identifiable non-financial resources that are acquired and owned by the entity and:

• have a natural-material form;
• are used for the production and/or supply/sale of assets;
• or services, for rental, administrative or other purposes;
• are expected to be used in more than one accounting period;

A non-financial resource is identifiable if it is possible to determine the relationship between it and the concrete derivation of the expected economic benefit for the enterprise from it. The expected economic benefit may arise from the combined action of a group of assets, where the benefits cannot be distinguished by specific assets. In order to establish the relationship in this case, it is necessary to determine (identify) the fixed tangible asset based on:

• the entity’s rights to the asset separately from other assets;
• the ability to remove the asset from the enterprise separately from other assets;

The definition given by IAS 16 Property, plant and equipment is essentially not much different from that given in the national standard. IAS defines that these are assets that:

• are held by the enterprise to be used for the production or supply of goods and services, for rental to others or for administrative purposes; and
• are expected to be used over more than one period;

Recognition of DMA in the budget
In budgetary enterprises, DMA can be recognized if they meet the definition of DMA and have a materiality threshold, which according to item 16.16.2 of VAT20/2004 can be in the range of BGN 500 to 1000 . Assets below the threshold of BGN 500 are necessarily treated as short-term assets. Assets that are over BGN 1,000 must be treated as DMA. For those falling between BGN 500 and 1000, their treatment depends on the adopted accounting policy. The secondary disposers follow the accounting policy set by the primary disposer.
Exceptions to this rule are computer configurations and other similar interconnected assets, when the value of the entire configuration exceeds the minimum threshold of BGN 500, they are registered as DMA (essential parts – computer and monitor), regardless of the fact that each part by itself may be below the minimum threshold
Adoption of an accounting policy
The first-tier spenders of budget funds must adopt an accounting policy regarding the reporting of DMA in their structure, which must define a minimum:

• value threshold
• ex post valuation policy – ​​by historical value or by revalued value (increase and decrease)

In the event that it adopts a policy of revaluation, the primary disposer must also determine a frequency of revaluation of DMAs so that their value does not differ materially from the market values ​​of the assets.

Recognition of fixed tangible assets in the budget
For the purposes of the materiality thresholds, the effect of the recognition or non-recognition of a VAT tax credit should not be taken into account, i.e. for the purposes of the materiality thresholds, the value of assets does not include VAT and other taxes. The chosen DMA classification approach does not change for insignificant changes in value. In the event of a permanent change in the value of the tangible fixed asset below the materiality threshold, it is written off as an expense at the beginning of the following year and entered in account 9909.
Example: the materiality threshold in budgetary enterprise XX is BGN 900. At the end of the year, during an impairment review, the DMA worth BGN 1,300 was depreciated and represented in the balance sheet at a value of BGN 680. This asset for the current year remains to be reported as DMA, regardless of the fact that its value is below the value threshold of BGN 900. At the beginning of the next year, this asset is written off as an expense and entered off-balance sheet on account 9909.

Initial assessment of DMA
The acquisition price of DMA does NOT include the financial costs of their acquisition.
The acquisition price includes:

• the compensation of the owners for the alienation of the assets;
• Each tangible fixed asset is initially valued at acquisition cost, which includes the purchase price (including duties and non-refundable taxes) and all direct costs.

Direct are the costs that are necessary to bring the asset into working condition in accordance with its purpose. These are:

• site preparation costs (on the ground where the asset will be used);
• initial shipping and handling costs;
• installation costs, including those incurred during the control and pre-commissioning periods, as well as the usual costs associated with the phased introduction into use of the fixed tangible asset;
• costs of bringing the acquired long-term tangible asset into working condition: costs for fees of architects, engineers, economists and others related to the project, economic justification, order and/or construction, delivery, installation, commissioning, etc. of the fixed tangible asset;
• the estimated costs up to the amount of the accrued provision for liabilities for: dismantling and decommissioning the asset and restoration of the land on which the asset was installed;

Example: a budget enterprise has purchased a machine for laboratory tests worth BGN 24,000 including VAT. It paid BGN 1,000 for transport, BGN 1,200 with VAT for installation, BGN 2,000 for specific software to control the machine. It also paid BGN 5,000 for training the staff to work with the machine.
The company took the machine worth BGN 28,200 to account 2049, made up of the following costs
– the purchase price of the machine – BGN 24,000;
– transport costs – BGN 1,000;
– installation costs – BGN 1,200;
– expenses for specialized management software – BGN 2,000
. The expenses of BGN 5,000 incurred for staff training are reported on account 6025 “Expenses for personnel qualification and retraining”.

Valuation of DMAs in the process of acquisition
DMAs in the process of acquisition at the end of the reporting year are evaluated on the basis of the reached stage of acquisition, and not on the basis of the amounts paid in advance for their acquisition.
Example: A contract for the delivery and installation of a machine worth BGN 20,000 was concluded in the XXX enterprise. Transport costs of BGN 2,000 have been charged for the delivery of the machine. and BGN 7,000 must be paid for the installation according to the contract. The machine has been delivered and the installation has started, but it requires a long technological time to complete it. The company has paid for the machine, transport costs and a 20% advance for installation. He will pay the remaining costs after putting the machine into operation. Work is currently approximately 50% complete

Current during the year
D-t s/ka 2079/C-t s/ka 4010 or 4523 or 4548
Delivery of the machine 20000 BGN
Transport 2000 BGN
For the transferred advance:
D-t s/ka 4020 /C-t s/ka 7500, 50; 1400 BGN;
Evaluation at the end of the year:
From the agreed sums for installation according to the assessment of the installation stage, the amount
is 50% of the agreed amount (BGN 3500)
D-t s/ka 2079/K-t s/ka 4020 1400 BGN (amount of the transferred advance )
D-t s/ka 2079/K-t s/ka 497X Adjustment for liabilities BGN 2,100
At the beginning of the next year
D-t s/ka 2079/K-t s/ka 4020 BGN 1,400 (red return)
D- t s/ka 2079/KT 497X Adjustment for liabilities BGN 2100 (red reversal)
Final payment according to the contract upon completion of the installation
D-t s/ka 2079/K-t s/ka 4010 5600 BGN
When putting the machine into operation
D- t s/ka 2049/K-t s/ka 2079 BGN 29,000;

Acquisition of DMA
The accounting for the acquisition of DMA is performed differently depending on the type of acquisition and the counterparty. In this presentation, we will look at the different ways of acquisition and the peculiarities of their reporting, giving in some cases examples to help better understand the specifics.

Acquisition of DMA – by purchase from a non-budgetary organization;
D-t s/ka 20XX/K-t s/ka 4010
Acquisition of DMA – by purchase from a budget organization;
Date of sale 20XX/ Date of sale 4523,4548,4599
Date of sale 4970/Day of sale 6081
Upon payment
Date of sale Gr.75/Day of sale /ki g.50,7500
D-t w/k g.45/K-t w/ka 4970
Acquisition of DMA – by donation;
D-t s/ka 20XX/K-t s/ka 7414
Acquisition of DMA – by exchange;
Pursuant to item 16.18 of VAT 20/2004, the replacement is valued at the fair value of the replaced or acquired asset, which of the two is more clearly determinable. According to VAT 5/2016, when accounting for this exchange, we must also take into account the accumulated depreciation up to the time of the exchange.

Example: budget enterprise XX owns a carpentry machine with a reported value of BGN 30,000, which it has used for 10 years. The accumulated depreciation to date is BGN 30,000. The carpentry workshop is currently closed and this machine is redundant for the company. At the same time, the enterprise needs computers that it does not have the budget to purchase. At the moment, such a used machine can be purchased on the market for BGN 2,000. The company is negotiating with the YY organization, which can provide them with computers that it bought 1 year ago, 4 pieces, and it needs the carpentry machine. The computers have satisfactory parameters for organization XX, but they have insufficient capacities for the planned computerization for enterprise YY. The accounting value of the computers is 4000, accumulated depreciation 1900, book value 2100 BGN. The two organizations agree that the exchange will be carried out without additional payment. Both organizations are budgetary.

The accounting entries in organization XX are as follows:
D-t s/ka 2414/ K-t s/ka 2049 BGN 30,000 for writing off the carpentry machine;
D-t s/ka 2041/K-t s/ka 7801 BGN 2000 for bringing in 4 computers;
Accounting entries in the organization YY
D-t s/ka 2414/K-t s/ka 2041 BGN 1900;
D-t s/ka 2049/ K-t s/ka 2041 BGN 100; Apartment building 7801 BGN 1,900;

Acquisition of DMA – through financial leasing;
Example: Company XX acquires a car through a financial lease worth BGN 30,000. The lease is for 5 years. The company will pay BGN 5,000 in interest.

a) the lease is from a local person
D-t s/ka 2051 30000 BGN
D-t s/ka 1917 5000 BGN
K-t s/ka 1911 35000 BGN
§ 52-04 30000 BGN;
b) the lease is from a foreign person
D-t s/ka 2051 30,000 BGN
D-t s/ka 1918 5,000 BGN
K-t s/ka 1912 35,000 BGN
§ 52-04 30,000 BGN;

It is important to note here that since this transaction is over BGN 10,000. and the term of the lease contract is over 1 year, then it falls within the scope of the provisions of item 7.4.7 of VAT 20/2004 in this case, regardless of the fact that we have no payment in the situation, this transaction must be recorded in the cash statement as capital expenditure excluding interest. In this case, we will have an expense under p-f 52-04 for BGN 30,000.
The accounting operations and the requirements for reflection in the cash statement and under the terms of trade credit are similar. The accounting accounts for the reflection of trade credit are: 1927,1928 (for interest) and 1921, 1922 (for liability).
Acquisition of land, infrastructure objects, books in the library;
From 01.01.2014, the acquisition of land (with the exception of the land adjacent to buildings), infrastructure objects and books in the library are accounted for on the balance sheet. Previously, these objects were reported on off-balance sheet accounts. The reporting of these objects is carried out in parallel in two economic areas – Budget or SES and DSD. In the “Budget” economic district or the SES economic district, an expense is reported upon acquisition, with the exception of lands adjacent to buildings, and in the DSD they are entered as DMA.
In the reporting area Budget or SES
D-t s/ka 6075/K-t s/ka 40XX, 50, 7500, 74.. – expenditure for the acquisition of infrastructure objects through external supplies
D-t s/ka 6076/K-t s/ka 40ХХ, 50, 7500, 74.. – major repair of infrastructural objects through external supplies
D-t s/ka 6077/K-t s/ka 40ХХ, 50, 7500, 74.. – cost of land acquisition in the country
D-t s/ka 6078/K-t s/ka 40XX, 50, 7500, 74.. – expenditure for land acquisition abroad
D-t s/ka 6075/K-t s/ka 40XX, 50 .
​buildings lands
In the reporting area of ​​the DSD
2201/K-t s/ka 7609 – lands, forests and perennials
2202/K-t s/ka 7609 – infrastructure sites 2202/K
-t s/ka /ka 2203/K-t s/ka 7609 – assets with historical and artistic value
D-t s/ka 2204/K-t s/ka 7609 – books in the library

Write-off of DMA
The accounting entries for the sale of DMA after 01.01.2014 differ depending on the type of recipient organization. The difference is dictated by the fact that from the point of view of the enterprise as an independent unit in the budget, they do not differ, but from the point of view of the consolidated statement, the two sales have a different essence: the sale to a non-budgetary organization – creates income and expense for the budget as a whole, and the sale to a budget organization – does not create revenue and expense for the budget as a whole. With VAT 5/2016, budget organizations started charging depreciation. So all accounting entries must also take this fact into account.

Sale of a non-budget organization
D-t s/ka 4110, 4130/ K-t s/ka 7131-7133; 7140-7149-for accounting of income from the sale
D-t s/ka 6131-6133; 6140-6149; 2412-2419;/ K-t s/ka 22; 21; 20; accounting for the cost of the sale (book value) and write-off of depreciation;
Sale of a budget organization
D-t s/ka 4522/K-t s/ka 7131-7133; 7140-7149 With this operation, the enterprise recognizes income from the sale for the purposes of the GFO of the enterprise as an independent unit;
Mr. and Mrs. 6131-6133; 6140-6149; 2412-2419; / K-t s/ka 22; 21; 20 – writing off the balance sheet value as an expense; write-off of accrued depreciation;
D-t s/ka 7180/K-t 4960 recording of the correction: with this operation a correction of the income is carried out, since from the point of view of the budget as a whole, when summarizing the realized income of the budget organization from another budget organization must be eliminated .
At the time of payment
D-t s/ka 4960/K-t s/ka 4522
D-t s/ka 5013/K-t s/ka 7511
Deregistration due to absence or marriage
Deregistration due to absence or marriage is carried out taking into account the following:

• The entire article is written according to D-t s/ka 6992 (new account from 2014); D-t s/ka 241X/ K-t s-ki r-l 2, regardless of whether it is the fault of MOL or not;
• If it is the fault of the MOL, a claim is recorded: D-t s/ka 4213/K-t s/ka 7198
• If the absence is from an unknown perpetrator: D-t s/ka 9289/K-t s/kaT 9981

Appraisals after acquisition
a) Revaluation of DMA
According to NSS 16/2002, fixed tangible assets after their acquisition can be reported either at acquisition price or at revalued value. Which of the two methods is chosen is a matter of accounting policy adoption by the primary disposer. (Here we should note that the possibility of reporting DMA at a revalued value was removed from the NSS, but in the budget sector the NSS 2002 remained in force)
In case the revaluation method is chosen, the enterprise must also determine the frequency of revaluations of DMA, so that the assets presented in the balance sheet do not differ materially from the value at which they can be purchased at the time of presentation.

When choosing to report DMA at a revalued value, the differences from their revaluation are reported on account 7801.
Date s/ki 2XXX/K-t s/ka 7801 increase in the reported
value /ki 2XXX reduction of the reported value

b) Impairment of DMA
According to item 36.1 of VAT 20/2004, a review for impairment of non-financial DMA must be carried out once every 2 years. Very often in budget organizations, independent evaluators are used for this purpose, which is generally not mandatory. The DMA impairment review is performed against the current recoverable amount. The current recoverable amount of these assets is assumed to be their fair value. For its indication, the current purchase value of a similar asset can be used.

Example: budget organization XX owns a computer configuration worth BGN 1,800. The configuration was purchased 2 years ago. If the organization buys such an old configuration at the moment, it would pay BGN 1,100. In this situation, the organization should report a depreciation of the computer configuration for BGN 700;

D-t s/ka 7801/K-t s/ka 2041 700 BGN

Very often, budget accountants ask why depreciation should be carried out, since depreciation is already charged in the budget. Depreciation and impairment make different economic sense. Depreciation is charged based on actual use of the asset and recovery of its value under normal operating conditions. It is an estimate and at the end of each year is subject to review and correction for the future if we have additional data on operating conditions (NSS4). Impairment is a reduction in the value of the asset based on extraordinary events that have occurred and which indicate that the asset will not be able to recover its value in normal operation (IAS 36).
Transfer of DMA from the SES to the budget
According to item 21.5 of VAT6/2008, the transfer of the DMA acquired in the SES for use in the budget is accounted for with the following accounting operations:

De-registration from SES
D-t s/ka 7601/K-t s/ka 20
Enrollment in Budget
D-t s/ka 20/K-t s/ka 7601

Acquisition of DMA in a business way
The costs related to the acquisition and major repair of the DMA in a business way are initially charged to the accounts of city 60. Monthly or quarterly charges are applied to the DMA value through the operation:

D-t s/ka 20/KT 6501, 6507

Acquisition of infrastructure objects in a commercial way

a) initially the costs are charged according to the s. of c. 60
b) at the end of the month or quarterly, an operation is taken:
D-t s/ka 6504/K-t s/ka 6504 in the budget
D-t s/ka 2202/K-t s/ka 7609 in DSD

Accrual of depreciation of DMA and DNA
The accrual of depreciation in budget enterprises was introduced with VAT 5/2016. Accounting of depreciation in the budget is carried out on expense accounts from group 603 against corrective accounts from group 24:

We will not dwell in more detail on the problems related to amortization. All features of the calculation and determination of depreciation in the budget are described in detail in VAT 5/2016 of the Ministry of Finance.

https://www.minfin.bg/bg/1103

Appendix 1: Characteristics of accounts for DMA from SBO and their relationship with the paragraphs of EBC/2022

See PP for comparison of accounts and paragraphs: https://www.ada-soft.bg/bg/mproducts/forbudget/equa

Learn more about reconciliation of accounts and paragraphs: http://avcpa.eu/index.php/en/statii/biudgetno-schetovodstvo/120-2022-08-29-12-45-50

Paragraphs related to operations with non-financial assets (Sample EBC for 2022)

A) Proceeds from the sale of non-financial assets
40-00 Proceeds from the sale of non-financial assets
40-21 – proceeds from the sale of computers and hardware
40-22 – proceeds from the sale of buildings
40-23 – proceeds from the sale of other equipment, machinery and facilities
40-24 – proceeds from the sale of means of transport
40-25 – proceeds from the sale of business inventory
40-26 – proceeds from the sale of infrastructure objects
40-29 – proceeds from the sale of other DMA
40-30 – proceeds from the sale of intangible fixed assets
40-39 – proceeds from the sale of greenhouse gas emission allowances
40-40 – proceeds from the sale of land
40-71 – proceeds from the sale of the state reserve
40-72 – proceeds from the sale of agricultural produce
Note: For the purposes of cash performance, the amounts under § 40-00 are presented as a revenue item, with the exception of § 40-71, which is presented as a reduction of the corresponding expense item.

B) Acquisition of non-financial assets
51-00 Overhaul of fixed tangible assets
52-00 Acquisition of fixed tangible assets
52-01 – acquisition of computers and hardware
52-02 – acquisition of buildings
52-03 – acquisition of other equipment, machinery and facilities
52-04 – acquisition of means of transport
52-05 – acquisition of business inventory
52-06 – construction of infrastructure objects
52-19 – acquisition of other DMA
53-00 Acquisition of intangible fixed assets
53-01 – acquisition of software products and licenses for software products
53-09 – acquisition of other intangible fixed assets
54-00 Acquisition of land
57-00 Increase of the state reserve and purchase of agricultural production
57-01 – payments for replenishment of the state reserve
57-02 – payments for the purchase of agricultural production
from § 58 to § 59 – xxx
Note: For the purposes of cash execution, the operations of acquisition of non-financial assets (§§ 51-00 – 57-00) are presented as an expense item and are subject to classification according to the relevant functions, groups and activities in section VI of the EBC

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DEVELOPMENT, SALE AND IMPLEMENTATION OF SPECIALIZED ECONOMIC SOFTWARE

Fixed Assets Module

Dear clients,

In connection with VAT No. 5 of 30.09.2016 for charging depreciation of non-financial fixed assets by budgetary organizations, we present to your attention  the Module “Fixed Assets”

⮚ Purpose:

Covers the activity of acquiring assets, charging depreciation, changing inventory items, revaluations, tracking related parts of assets and write-offs. Compilation of an accounting amortization plan, according to the requirements of SS 4.

⮚ The benefits you get:

Easy filing of acquired assets with complete information about them.

Automatic calculation of accrued depreciation using the straight-line method.

Through a system of filters, quickly find information about the asset you are interested in.

Flexible reference part with the possibility to print the Inventory book, Inventory list, Comparative list, Accounting depreciation plan, turnover reports, etc., as well as export of the information in different file formats – text (.txt and .rtf), MS Excel, OpenOffice and HTML.

⮚ Additional options we offer: 

  Import available assets from a file.

  Organization of automatic accounting for clients using PP “Scepter (i)”.

⮚ For whom the DMA module is suitable: 

   For customers who do not use accounting software distributed by “ADA – SOFT”.

 For customers using accounting software distributed by “ADA – SOFT” – PP “Scepter”, “Scepter(i)” and “Adakta”.

  For customers using Scepter and switching to Scepter (i).