Fixed Asset received as gift

[kalim24]

Hello.

I have an accounting queries regarding a fixed Asset received by a Company without any monetary consideration. The asset is a car received as a gift.

My question is:
1. What will be my accounting entries for this gift.
2. Will depreciation be charged for this asset.
3. If i earn an income from this car during the course of business, how will account this income receipt?
4. If i sell this car in the future, how should the disposal proceed be accounted?

Hope you can help me in this issue.

Thanks!

 

[Tokyo Red]

Firstly - fill out some kind of anti-bribery form, then, and this is just my rough estimate (been out of Financial Accounting a fair while now!)...

1 - As I understand it you'd need to recognise at lower of market value & cost...so record asset in FA reg as Nil value.
2 - Depreciate asset as per others in it's class - as NBV of asset is Nil the maths should be fairly simple
3- Depends on the income - if you sell the vehicle then there may be some tax impact (e.g. UK Capital Gains tax). Struggling to think of how else the vehicle may "earn" income, either way the cost of the asset was nil - so depreciation in Income Statement is nil.
4. See 3. You would credit cash with the proceeds, and debit the FA register with the gain on disposal, taking the profit to the IS (before tax).

I hope this would helpful - would be interesting to see how far wrong I might be...like I said, it's been a while since I thought of any of this stuff!

 

[kalim24]

But the asset will be valued as NIL in my account, having no value and at the same time present in my fixed asset register. Ok I agree with you.

My method of depreciation for the car is at 20% each year. How will I account the depreciation of the NBV itself is NIL?

How can I credit cash when I will be receiving money from the disposal? and how can i debit my FA reg with the disposal proceed when I have no balance of the car in the FA reg??

Its not at all clear for me.

Please help as its urgent.

Thanks.

 

[Tokyo Red]

I am suggesting a nil valuation as it is more conservative. There is an argument to record it at fair value (market value) for a used vehicle.

In any event the asset should be listed in your asset register, even at nil value. 20% depreciation of zero is zero, so it's just a blank entry until disposal. If you assign it a fair market value then the gift should be declared in a note to the accounts as there will be an inconsistency in the increase in asset value not explained by any corresponding entry.

The entry on disposal is just to cash account (in full) and to the P&L (less undepreciated value...in this case nil).

 

[mike99]

What were the circumstances surrounding the gift? Was it given by a customer as an incentive, for example? Does it relate to a lease?

 

[bklynboy]

I dont think the asset has a 0 value. Under US GAAP (if its a US entity) you need to look at ASC 845 (Non monetary transactions). Assuming this is a straight gift, then generally its the FV of the asset received. Offset would likely be some "Other Income" amount. Answer really depends on why the car was donated though.