Application Of The Depreciation Method Of Fixed Assets According To SAK And The Tax Law And Their Influence On Profits In PT. XL Axiata Medan

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Application of the Depreciation Method of Fixed Assets According to PSAK and Taxation Law and their Effect on Profits in PT. XL Axiata Medan

Introduction

Fixed assets or plant assets are essential components of a company's operations, playing a crucial role in production activities. These assets are obtained in a ready-made state, used in company activities, and have a useful life of more than one year. The investment made by the company in acquiring these assets requires careful planning and management, including policies in determining the way of acquisition, depreciation methods, and expenses related to the use of fixed assets. This study aims to understand how the accounting procedures implemented by PT. XL Axiata Medan in the management of fixed assets.

Background of the Study

PT. XL Axiata Medan is a company that operates in the telecommunications industry, providing various services to its customers. As a company, PT. XL Axiata Medan has invested heavily in fixed assets, such as buildings, equipment, and vehicles, to support its operations. The management of fixed assets is a critical aspect of the company's operations, as it affects the company's financial performance and compliance with accounting standards and tax regulations.

Methodology

This study uses a qualitative approach, collecting data through documentation and interview techniques. The primary and secondary data collected are used to explore the condition of the company's fixed assets. The analysis shows that PT. XL Axiata Medan has classified a good fixed asset, where the acquisition price of assets is recorded in accordance with the agreed invoice, including the costs required until the fixed assets can be used.

Depreciation Method

The depreciation method is a critical aspect of fixed asset management, as it affects the company's financial performance and compliance with accounting standards and tax regulations. PT. XL Axiata Medan uses the straight-line method, which is in accordance with PSAK No. 17, which regulates the accounting of fixed assets. This method calculates depreciation consistently throughout the life of the benefits of assets, which has implications for calculating company profits. The depreciation applied can affect the income statement, where high shrinkage costs can reduce reported net profit.

Taxation Law

In addition to accounting standards, companies must also consider the depreciation of fixed assets in the tax context. In accordance with the taxation law, depreciation of fixed assets can also provide tax benefits, because depreciation costs can be deducted from income tax. Thus, the use of appropriate depreciation methods not only has an impact on financial statements but also affects company tax obligations.

Implications of Depreciation Method

The application of the depreciation method has significant implications for PT. XL Axiata Medan's financial performance and compliance with accounting standards and tax regulations. The company needs to anticipate the possibility of stopping the use of fixed assets, both because the economic period has been expired or due to damage due to natural disasters or riots. In this situation, the company must re-evaluate the book value of fixed assets and consider the elimination of financial statements.

Conclusion

The application of depreciation methods in accordance with PSAK and tax regulations is not only important to maintain company compliance but also to provide an accurate picture of financial performance. With the right management, PT. XL Axiata Medan can maximize the benefits of fixed assets and optimize the profits obtained. The company's ability to manage its fixed assets effectively will have a significant impact on its financial performance and compliance with accounting standards and tax regulations.

Recommendations

Based on the findings of this study, the following recommendations are made:

  1. PT. XL Axiata Medan should continue to use the straight-line method for depreciating its fixed assets, as it is in accordance with PSAK No. 17.
  2. The company should re-evaluate its fixed assets regularly to ensure that they are still in use and have not been damaged or become obsolete.
  3. PT. XL Axiata Medan should consider the elimination of financial statements for fixed assets that are no longer in use or have been damaged beyond repair.
  4. The company should take advantage of tax benefits by deducting depreciation costs from income tax.

Limitations of the Study

This study has several limitations, including:

  1. The study only focuses on PT. XL Axiata Medan and may not be generalizable to other companies.
  2. The study only uses qualitative data and may not provide a comprehensive understanding of the company's fixed asset management.
  3. The study only examines the application of depreciation methods in accordance with PSAK and tax regulations and may not consider other factors that affect the company's financial performance.

Future Research Directions

Future research should focus on the following areas:

  1. The impact of depreciation methods on company financial performance and compliance with accounting standards and tax regulations.
  2. The role of fixed assets in company operations and their impact on financial performance.
  3. The application of depreciation methods in different industries and companies.

References

  1. PSAK No. 17, Accounting for Fixed Assets.
  2. Taxation Law, Depreciation of Fixed Assets.
  3. PT. XL Axiata Medan, Annual Report 2020.
  4. Various articles and research papers on fixed asset management and depreciation methods.
    Frequently Asked Questions (FAQs) about Depreciation Methods and Fixed Asset Management

Q: What is depreciation, and why is it important?

A: Depreciation is the decrease in value of a fixed asset over its useful life. It is an important concept in accounting and taxation, as it affects the financial performance and compliance of a company with accounting standards and tax regulations.

Q: What are the different types of depreciation methods?

A: There are several types of depreciation methods, including:

  1. Straight-line method: This method calculates depreciation consistently throughout the life of the benefits of assets.
  2. Declining balance method: This method calculates depreciation based on the asset's original cost and its remaining useful life.
  3. Units-of-production method: This method calculates depreciation based on the number of units produced or the number of hours used.
  4. Double declining balance method: This method calculates depreciation based on the asset's original cost and its remaining useful life, with a higher rate of depreciation in the early years.

Q: What is the straight-line method, and how does it work?

A: The straight-line method is a depreciation method that calculates depreciation consistently throughout the life of the benefits of assets. It is calculated by dividing the asset's original cost by its useful life. For example, if an asset has a useful life of 5 years and an original cost of $10,000, the annual depreciation would be $2,000 ($10,000 ÷ 5 years).

Q: What is the difference between depreciation and amortization?

A: Depreciation and amortization are both methods of reducing the value of an asset over its useful life. However, depreciation is used for tangible assets, such as buildings and equipment, while amortization is used for intangible assets, such as patents and copyrights.

Q: How does depreciation affect a company's financial performance?

A: Depreciation can affect a company's financial performance in several ways:

  1. Reduced net income: Depreciation can reduce a company's net income, as it is a non-cash expense.
  2. Increased tax liability: Depreciation can increase a company's tax liability, as it is a deductible expense.
  3. Improved cash flow: Depreciation can improve a company's cash flow, as it reduces the company's tax liability.

Q: What are the benefits of using the straight-line method?

A: The benefits of using the straight-line method include:

  1. Simplified accounting: The straight-line method is a simple and straightforward method of depreciation.
  2. Consistent depreciation: The straight-line method calculates depreciation consistently throughout the life of the benefits of assets.
  3. Improved cash flow: The straight-line method can improve a company's cash flow, as it reduces the company's tax liability.

Q: What are the limitations of using the straight-line method?

A: The limitations of using the straight-line method include:

  1. Inaccurate representation of asset value: The straight-line method may not accurately represent the asset's value, as it assumes a constant rate of depreciation.
  2. Inadequate consideration of asset usage: The straight-line method may not adequately consider the asset's usage, as it assumes a constant rate of usage.
  3. Inadequate consideration of asset condition: The straight-line method may not adequately consider the asset's condition, as it assumes a constant rate of depreciation.

Q: What are the best practices for fixed asset management?

A: The best practices for fixed asset management include:

  1. Regular asset evaluation: Regularly evaluate the asset's condition and usage to determine its remaining useful life.
  2. Accurate depreciation calculation: Accurately calculate depreciation using the straight-line method or other approved methods.
  3. Proper asset disposal: Properly dispose of assets that are no longer in use or have been damaged beyond repair.
  4. Accurate financial reporting: Accurately report fixed asset information in the company's financial statements.

Q: What are the consequences of poor fixed asset management?

A: The consequences of poor fixed asset management include:

  1. Inaccurate financial reporting: Poor fixed asset management can lead to inaccurate financial reporting, which can affect a company's financial performance and compliance with accounting standards and tax regulations.
  2. Increased tax liability: Poor fixed asset management can lead to increased tax liability, as it may result in incorrect depreciation calculations.
  3. Reduced cash flow: Poor fixed asset management can lead to reduced cash flow, as it may result in incorrect asset disposal and asset utilization.
  4. Decreased asset value: Poor fixed asset management can lead to decreased asset value, as it may result in incorrect asset evaluation and depreciation calculations.