Interest and Taxes on Plant & Building

Lesson Summary- Interest and Taxes incurred during the construction of Plant and Building for Cambodia Tax

Interest and Taxes incurred during the construction or acquisition phase of Plant and Building must be capitalized and depreciated with the relevant property per Law on Cambodia Tax.

Example 1

ABC Company constructed admin building costing $100,000 (before interest expense). Because of financial problem, Amount $100,000 is loan from bank to construct this building. Interest that Bank charged on this loan ($100,000) is $24,000 (two years).

Required

1. Calculate cost of building per Law on Cambodia Tax.
2. Calculate tax depreciation Law on Cambodia Tax. Depreciation rate on building is 5% (fixed asset class 1) using straight line.

Answer

1. Calculate cost of building per Law on Cambodia Tax.

Because building construction cost occurred via bank loan, so interest cost is cost of building (fixed asset) and it is not interest expense.

Cost of building = amount before interest + interest = $100,000+$24,000=$124,000

Cost of building =$124,000

2. Calculate tax depreciation Law on Cambodia Tax

Tax Depreciation expense for building = cost x 5% = $124,000 x 5%=$6,200