USA Fixed Asset

[Vickie]

Morning!
I have two assets with NBV of $1,000 each. The company from which these were originally purchased the equipment replaced the two with one new machine valued at $8,000.00. The cost of each machine was originally $3,000. Since I have a gain of about $6,000 what value do I give the new equipment? I can retire the old assets and recognize the $1,000 each but how do I calculate the new machine? Since we did not pay any cash, I can't use the ITC.

Thanks!

 

[bklynboy]

Is this a lease or did you purchase out right?

 

[Vickie]

The original machines were purchased outright. We are not leasing, nor did we put any cash out for the new machine!

 

[bklynboy]

I can't wrap my head around why someone would give you a brand new machine that costs more than the original and way more than the current value. In any case I would look into the guidance for a noncash exchange of property (APB 29).

Look at this link as it can get a little complicated without knowing all your facts (is this a commercial substance transaction or not - to me its very strange so can't be sure that it is). Pay special attention if a gain can even be recorded since these are similar assets and usually this means that you defer until second asset is exhausted) - Scenario 6 I think applies to you

http://accounting-financial-tax.com/2009/08/non-monetary-exchanges-of-fixed-asset/

 

[Vickie]

Thanks for your time. I truly appreciate it.

 

[ladyrider]

Personally I wouldn't see that Scenario # 6 applies at all here - that refers to traded assets and this isn't a trade, it's a donation.

But you state "the cost of each machine" was originally 3K - what machines are you referring to? The ones being given to you or yours currently on the books? If it's the cost of yours then the entry is

CR Fixed Asset 3,000
DR Accum Depr 2000
DR Gain/Loss 1000
Assuming you're just scrapping the ones on your books.

If the original cost is referring to the machines being given to you that is of no relevance to your books.
If the NBV of the new machines being given to you are truly 8K then your value on the books is the 8K and the original cost of purchase doesn't even come into plat on your end - on theirs it does but not on your books

To record the donated asset assuming the NBV is the 8K you state then
DR Fixed Asset 8,000
CR Income 8,000

 

[bklynboy]

Personally I wouldn't see that Scenario # 6 applies at all here - that refers to traded assets and this isn't a trade, it's a donation.

What makes you say its a donation? They are giving up their existing machines for a new one. Donation means they don't give up anything which is not the case here. Facts are a little brief but I don't see how its a donation.

 

[ladyrider]

What makes you say its a donation? They are giving up their existing machines for a new one. Donation means they don't give up anything which is not the case here. Facts are a little brief but I don't see how its a donation.

If they didn't pay cash for them then what else would they be? Donation/free whatever they were - they didn't cost the new owners anything
It's a donation TO them and she doesn't specifically state what they're doing with their existing machines just that they are "retiring them" but in my reply I was referring to the machines that are being given to them
Might be reading it all wrong - if so then.... - the question is not fully understandable.

In her followup reply to you she states "nor did we put any cash out for the new machine!" so free is free no matter how you look at it.

 

[bklynboy]

replacement of equipment that is quite common. No one just donates equipment to a for-profit organization. I agree the situation is strange but they did give back the original equipment to the supplier and received something in return. That fact means its not a donation which doesn't require the company to give something back. Poster clearly said "replaced" the equipment which I take to mean gave it back and got a newer version. If Vickie can be more specific that would help but I cant see why someone would donate it without getting something in return. BTW you don't have to pay cash to account for as other than a donation - which is why there is guidance on exchanges.

 

[ladyrider]

replacement of equipment that is quite common. No one just donates equipment to a for-profit organization. I agree the situation is strange but they did give back the original equipment to the supplier and received something in return. That fact means its not a donation which doesn't require the company to give something back. Poster clearly said "replaced" the equipment which I take to mean gave it back and got a newer version. If Vickie can be more specific that would help but I cant see why someone would donate it without getting something in return. BTW you don't have to pay cash to account for as other than a donation - which is why there is guidance on exchanges.

Yep none of it is clear. Oh well... I'm sure she'll figure it out