I understand a vehicle used for business is an asset. Do I place it under “Fixed assets, accumulated depreciation” or another title. I will be depreciating it under the simplified depreciation rules (for Australian small businesses) and want to know how to set this up and how this works to do it properly.
If your business trades through a company or trust (not necessary for a sole trader), the motor vehicle must be purchased by the business and registered in the name of the business to be regarded as a business asset. You can enter it under fixed assets and calculate depreciation under the small business rules (15% flat first year then 30% of the diminishing value for subsequent years). You should ensure the GST claimed on the motor vehicle is not part of the asset value and operating costs included in the purchase price such as registration and insurance are allocated to expenses.
I was interested to read this question and the answer… I am in Australia too and would like to know what a sole trader should do .i.e. how to account for it and the best place to record it in Manager?
Enable the Fixed Assets tab then create the motor vehicle as an asset. When you pay for the car under Spend Money or enter it through Journal Entries if it is financed, you allocate the payment to the Fixed Assets account and select the asset you created. Depreciation is entered by clicking the Accumulated Depreciation figure which will be nil for a new asset and creating a New Depreciation entry.
A sole trader can account for fixed assets in the same way as a company or trust. The sole trader is the owner of the business and also the owner of the motor vehicle purchased personally and can validly depreciate it under the business. The key point is that the entity that operates the business must also own the asset to depreciate it. It is incorrect for small business operators that trade through a company to buy assets personally and record them as company assets.
Great info. Before I add my new vehicle (as a sole trader) I want to know how the old vehicle should be cleared. My first vehicle was purchased out of my own pocket ($4000) and used for work and family (50/50). I listed it as an asset in manager ($4000). I recently traded it in for a new work car which is used 100% for business (as we purchased a second car for family use). I used half the original trade in value as a deposit on the new vehicle ($1,500) and the other half ($1,500) to go back in our family bank account (to help cover costs of the new family vehicle).
When I set the dispose of date of the fixed assed (car) it now shows up as $4000 in the suspense account under equity. How should I go about this so it the funds disperse correctly?
Did you dispose of the car by Editing the asset, ticking Disposed fixed asset and entering the Date of disposal?
Yes, I did as you stated but is showing up in suspense with the date I had originally acquired the vehicle. Is this right or am I missing something?
Send your accounting file to
firstname.lastname@example.org and we will have a look what’s being posted to suspense account.
Hi Lubos, I have recently purchased another vehicle for my business that cost less than $20k. (Based off the governments extension of immediate tax write off assets under $20k until June this year). I paid for the vehicle from my personal bank account. Do I add the vehicle to fixed assets? and how should I account for payment being from my personal bank account?
The answer depends on local tax law. Is the provision is only for accelerated depreciation, you should still create the vehicle as a fixed asset. There may be aspects of the law that could require recapture of claimed depreciation under certain circumstances in the future. See Expense fixed assets | Manager.
If the provision raises the threshold for capitalization, you should just consider it an expense. Then, no fixed asset creation is needed.
Either way, since you paid with personal funds, enter an expense claim. See Use expense claims | Manager.
You can use expense claims to allocate the purchase of the car to an expense account named - Low Cost Assets. If you don’t use expense claims you can create a journal entry debiting the expense account and crediting your capital account.
Thanks for the replies. That makes sense. Although I purchases the vehicle from my private account, I now have to pay for transfer of registration and Insurance. Will it matter if I pay for those from my private account or should I pay for those from the business account?
You can do either. If you pay with personal funds, enter another expense claim or add a line item for the transfer and insurance to the expense claim for the vehicle itself.
In regards to the disposal of my old vehicle. I’m not sure how to clear it from “Accumulated depreciation” when sold. Also, (for simplicity sake) I bought the car for $30k and it is now worth $20k. Is this considered a loss on disposal that can be claimed? (or taxable income) in light of the five years of depreciation?
See Dispose of fixed assets | Manager, especially the Note at the end.
If you sell the old vehicle for more than its book value (cost basis less accumulated depreciation), you will have income to report in most jurisdictions. If you sell for less than book value, you will have a loss to deduct from income. Either way, this will show up in Fixed assets - loss on displosal expense account. The balance will be positive or negative depending on whether you have a loss (+) or gain (-).
@Tut is correct on how to record the disposal of an old vehicle. However, this is a technical tax query that should be raised with your tax agent. If you are a Small Business Entity that uses pooling to depreciate assets, the termination value of the asset must be deducted from the pool balance.
A quick question regarding depreciation in Manager. The figure showing has the minus (-) sign showing before it, so I gather that is normal? (yes?)
To make sure I understand correctly, the depreciated value is presently - $22,388. When I sell the car (eg. for $20,000), is this considered loss of disposal (of which I would claim) or is it considered gain (of which I would pay tax on?
Your post is confusing. First you say the depreciation figure has a minus sign in front of it. Then you say the depreciated value is a negative figure. Which is it? I suggest you post a screenshot of the fixed asset summary or at least a portion of it that shows this fixed asset.
here is a screen shot!