Article 257. Procedure for Determining the Cost of the Depreciated Property

1. Seen as fixed assets for the purposes of the present Chapter shall be the part of the property which is applied as a labour facility for the manufacture and sale of commodities (for the performance of works and for rendering services), or for the management of the organisation.

The original cost of a fixed asset shall be defined as the sum of the outlays on its acquisition (and in the event of acquiring a fixed asset by a taxpayer free of charge it shall be defined as the valuation cost of such property in compliance with Item 8 of Article 250 of this Code, its erection, manufacturing, delivery and bringing to the condition of fitness for use, safe for the amount of taxes subject to deduction and accounted in the composition of outlays in compliance of this Code).

Recognized as the original cost of the property, which is the object of leasing, there shall be the sum of the leasing party's outlays on its acquisition, construction, delivery, manufacturing and bringing to the condition of fitness for use, with the exception of the sums of taxes subject to deduction and recorded in the composition of the outlays in conformity with the present Code.

The replacement value of the depreciated fixed assets, acquired (created) before the present Chapter is put into force, shall be defined as their initial cost with an account for the revaluations, performed before the date of enforcement of the present Chapter.

When defining the replacement value of the depreciated fixed assets, for the purposes of the present Chapter shall be taken into account the revaluation of the fixed assets, effected by the tax payer's decision as in the state on January 1, 2002 and reflected in the tax payer's business accounting after January 1, 2002. This revaluation shall be accepted for the purposes of taxation in an amount, not exceeding 30 per cent of the replacement value of the corresponding objects of fixed assets, reflected in the tax payer's business accounting as in the state on January 1, 2001 (with an account for the revaluation as in the state on January 1, 2001, made by the tax payer's decision and reflected in his business accounting in 2001). In this case, the size of the revaluation (of the devaluation) as in the state on January 1, 2002, reflected by the tax payer in 2002, shall not be recognized as the tax payer's income (outlays) for the purposes of taxation. In a similar order, for the purposes of taxation shall be accepted the corresponding revaluation of the sums of depreciation.

When the tax payer carries out in the subsequent reporting (tax) periods after the enforcement of the present Chapter the revaluation (devaluation) of the cost of the fixed assets objects by the market cost, the positive (negative) sum of such revaluation shall not be recognized as an income (as the outlays), taken into account for the purposes of taxation, and shall not be accepted in defining the replacement value of the depreciated property and in computing the depreciation charges, taken into account for the purposes of taxation in conformity with the present Chapter.

The residual cost of the fixed assets, introduced before the enforcement of the present Chapter, shall be defined as the difference between the replacement value of such fixed assets and the sum of depreciation, determined in the order, laid down in the fifth paragraph of the present Item.

The residual cost of the fixed assets put into operation upon entry of this Chapter into force shall be defined as a difference between their initial cost and the amount of depreciation accrued for the period of their depreciation.

When the taxpayer uses the objects of the fixed assets of his own manufacture, the original cost of such objects shall be defined as the cost of finished products calculated in compliance with Item 2 of Article 319 of this Code increased by the sum of the corresponding excise duties on the fixed assets which are excisable commodities.

2. The original cost of the fixed assets shall be changed in the cases of completing the construction and the equipment, of the reconstruction, modernisation, technical re-equipment and partial liquidation of the corresponding objects, and also on other similar grounds.

Referred to the works involved in completing the construction and equipment, and also in the reconstruction and modernisation shall be the works caused by a change in the technological or official purpose of the equipment, building, structure or other object of the depreciated fixed assets, by the increased loads and (or) by the other new properties.

For the purposes of this Chapter, to the reconstruction shall be referred the restructuring of the existing fixed assets objects in connection with the improvement of production and with the higher technical and economic indices carried out according to the project for the reconstruction of the fixed assets, aimed at an expansion of the production capacities, raising the standard and changing the range of the products.

To the technical re-equipment shall be referred a complex of measures aimed at raising the technical and economic indices of the fixed assets or of their individual parts on the basis of the introduction of advanced hardware and technology, of the mechanisation and automation of the production, of the modernisation and replacement of the outdated and physically worn out equipment with new and more productive versions.

3. For the purposes of the present Chapter, recognised as non-material assets shall be the results of intellectual activity and other objects of intellectual property, acquired and (or) created by the taxpayer (or the exclusive rights to them), which are used in the output of products (in the performance of works or in rendering services) or for the organisation's managerial needs in the course of a long period of time (over twelve months).

For a non-material asset to be recognised, it shall possess the capability to bring economic gain (income) to the taxpayer and properly formalised documents confirming the existence of the non-material asset itself and (or) the taxpayer's possession of the exclusive right to the results of the intellectual activity (including the patents, certificates and other protective documents, and a contract on the cession /acquisition/ of the patent or trade mark).

To the non-material assets are referred in particular:

1) the exclusive right of the patent holder to an invention, an industrial sample or a useful model;

2) the exclusive right of the author and other rightholders to the use of a computer programme or of a data base;

3) the exclusive right of the author or other rightholders to the use of the topology of the integral microschemes;

4) the exclusive right to a trade mark, a service mark, to the name of the place of commodity origin and company name;

5) the patent holder's exclusive right to selection achievements;

6) the possession of know-how, a secret formula or process, or of information concerning industrial, commercial or scientific experience.

The original cost of the depreciated non-material assets is defined as the sum of the outlays on their acquisition (creation) and on bringing them up to a state in which they are fit to use, with the exception of the sums of the taxes recorded in the composition of the outlays in conformity with the present Code.

The cost of the non-material assets created by the organisation itself shall be defined as the sum of the actual expenditures on their creation and manufacture (including material outlays, outlays on the remuneration of labour and on the services of the outside organisations, and the patent duties connected with receiving patents and certificates), with the exception of the sums of the taxes recorded in the composition of the outlays in conformity with the present Code.

To non-material assets shall not be referred:

1) scientific-research, research and development and technological works which have produced no positive result;

2) the intellectual and business qualities of the organisation's workers, their qualifications and labour capacity.

Article 258. Depreciation Groups. Specifics of Including the Depreciated Property into the Composition of the Depreciation Groups

1. The depreciated property is divided into depreciation groups in accordance with the term of its beneficial use. Recognised as the term of beneficial use is the period in the course of which an object of the fixed assets or an object of non-material assets serves to the purposes of the taxpayer's activity. The term of beneficial use shall be defined by the taxpayer on his own as on the date of putting the given object of the depreciated property into operation in conformity with the propositions of the present Article and subject of the classification of the fixed assets endorsed by the Government of the Russian Federation.

A taxpayer shall be entitled to extend the term of beneficial use of an object of the fixed assets after the date of its putting into operation, where after the reconstruction, modernization or technical re-equipment of such object the term of beneficial use thereof has increased. With this, the term of beneficial use of fixed assets may be extended within the limits of the time period established for the depreciation group which such fixed asset was previously included in.

If the term of beneficial use of an object has not increased after the reconstruction, modernization or technical re-equipment of an object belonging to fixed assets the taxpayer, when calculating depreciation thereof, shall take into account the remaining period of its beneficial use.

2. The term of beneficial use of an object of non-material assets shall be defined proceeding from the term of operation of the patent or of the certificate, and (or) from the other restrictions of the terms of use of the objects of intellectual property in conformity with the legislation of the Russian Federation or with the applicable legislation of a foreign state, and also proceeding from the term of beneficial use of non-material assets, substantiated by the corresponding treaties. The depreciation norms for the non-material assets, for which it is impossible to define the term of beneficial use of an object of non-material assets, shall be established as ten years (but shall be no longer than the term of the taxpayer's activity).

3. The depreciated fixed assets (property) shall be divided into the following depreciation groups:

- the first group - all the short-life property with a term of beneficial use from 1 to 2 years inclusive;

- the second group - property with a term of beneficial use of over 2 years and up to 3 years inclusive;

- the third group - property with a term of beneficial use from 3 to 5 years inclusive;

- the fourth group - property with a term of beneficial use from 5 to 7 years inclusive;

- the fifth group - property with a term of beneficial use from 7 to 10 years inclusive;

- the sixth group - property with a term of beneficial use from 10 to 15 years inclusive;

- the seventh group - property with a term of beneficial use from 15 to 20 years inclusive;

- the eighth group - property with a term of beneficial use from 20 to 25 years inclusive;

- the ninth group - property with a term of beneficial use from 25 to 30 years inclusive;

- the tenth group - property with a term of beneficial use of over 30 years.

4. The classification of the fixed assets, divided into the depreciation groups, shall be endorsed by the Government of the Russian Federation.

5. For those kinds of fixed assets which are not indicated in the depreciation groups, the term of beneficial use shall be fixed by the tax payer in conformity with the technical conditions or with the recommendations of the manufacturer organisations.

6. For the purposes of this Chapter, the depreciated property shall be put onto the records in accordance with their original cost, defined in conformity with Article 257 of the present Code, if not otherwise provide for by this Chapter.

7. Property received (handed over) into financial rent under a contract of financial rent (under a leasing contract, shall be included into the corresponding depreciation group by the party, which shall record the given property in accordance with the terms of the contract of financial rent (of the contact of leasing).

8. The fixed assets, the rights to which are subject to state registration in conformity with the legislation of the Russian Federation, shall be included in the composition of the corresponding depreciation group as from the moment of the documentarily confirmed fact of submitting the documents for the registration of the above-said rights.