Capital depreciation pools

It can be a challenge to determine whether capital categories (which translate into depreciation pools) need to be ringfenced. There is no general rule about this and it all depends on the fiscal regulations of the country in question. Generally the following key considerations tend to dictate whether it should be ringfenced:

Delay Until Production Start – If deprecation is delayed until production starts then does this apply to an asset's production or the entire company's production? If it applies to an asset's production then we should not ringfence the capital category. If it applies to a company's entire production then we should ringfence in order that depreciation may start as soon as there is production in any of the assets.

UOP Depreciation – One reasonably common depreciation method is UOP (Unit of Production) where the depreciation schedule is calculated as the current year's production divided by production remaining. If the UOP calculation should be carried out on the production of each asset then it should not be ringfenced. If the UOP calculation should be carried out at the company level then it should be ring-fenced.

Take Balance at End – Sometimes there is an undepreciated balance at the end of the project life which can be written off in the final period. The user must consider whether this write-off occurs at the end of the project life or at the end of all the company's activities.

It is important to note that ringfencing the Corporate Tax module does not automatically mean that the depreciation deductions (or any other deductions) are also ringfenced. This is always a separate consideration.