Sell Fixed Assets

Please how do I sell a fixed Asset in Manager?

thank you.

1 Like

Read this Guide, especially the Note at the very end: https://guides.manager.io/9121.

1 Like

I have read the above guide but can’t fully understand the steps i need to take to sell a fixed asset.

Advice given from @Tut from another topic:

If you are selling a fixed asset, use Receive Money in a cash or bank account. Allocate the receipt to Fixed assets and the specific asset’s subacount. This will adjust book value for the asset. In the Fixed Assets tab, edit the asset involved and tick the Disposed fixed asset box, which will allow you to enter the disposal date.

If you are trying to use a sales invoice to bill the buyer of the asset, that is an incorrect approach, because your company is not generating revenue from services or inventory held for sale. You are, instead, selling an asset used for the production of income. The buyer is not acting as a customer in this case, even if they are in other cases. A bill of sale or payment receipt (which you can print after using Receive Money) is the appropriate documentation. For example, if a computer store owns the building where it operates and sells the building, the building buyer would not get a sales invoice the same way as someone who buys a laptop.

I have a unusual case which I would appreciate some guidance with.

My landlord and I paid 50% of the cost of a fixed Asset say £8000 (I paid £4k, landlord paid 4k) My landlord mentioned at the time if I were to still be at the premises after 5 years he would reimburse my half of the cost of the asset. Nothing was in writing so I was doubtful…

I entered the fixed asset in Manager (ÂŁ4k) and over the years it has depreciated down to a book value of say ÂŁ1000.

Landlord has agreed to reimburse my half of the asset (ÂŁ4k) (Happily surprised!)

How do I enter this in manager?

Should I,

  • Receive Money in bank account
  • Allocate the receipt to Fixed assets and the specific asset’s subacount

Then,

  • edit the asset involved and tick Disposed fixed asset box and enter the disposal date.

Is this correct? What are the next steps?

1 Like

Interesting situation. Easy to handle from Manager’s viewpoint, but possibly sticky from the regulatory side. Let’s begin at the end of your post.

You would not normally tick the disposal box, because the asset is still in use. Even if a fixed asset has been depreciated to a book value of zero, it would remain on your books (along with its accumulated depreciation) until you actually dispose of it. But there is more to consider.

Moving upwards in your post, yes, you should definitely enter a receipt if the landlord actually pays you money. Post the receipt to Fixed assets and the asset’s sub account, just as you suggested. This will have the effect of lowering your purchase price. Because you have already depreciated 3,000 of your original purchase price, book value will now be negative. But that’s ok from the software’s perspective. Everything will come out when the asset is disposed. Meanwhile, you still have the asset and its depreciation on your books, fully supporting the deductions you have taken over the past years.

If this happens to be your only fixed asset, things will look a little unconventional on your balance sheet (accumulated depreciation greater than purchase cost). But assuming you have other fixed assets, it might not be noticeable without drilling down.

The more complex question is whether you are required to dispose of the asset now, since your investment in it has effectively been reduced to zero. That will depend on local accounting standards and law. It sounds like the “asset” comprised leasehold improvements. There are often complex rules for how these are accounted for and depreciated, since you are making investments in a property you don’t own. The biggest problem is that you’ve already claimed depreciation for something that now effectively cost you nothing. So you may (probably will) be required to recapture prior depreciation as income. That may involve disposing of the asset and journaling from Fixed assets - loss on disposal to some income account. Or you may only need to adjust Fixed assets - accumulated depreciation while keeping the asset on the books. The question of who now owns the leasehold improvements (if that is what they are) will also likely be important, an issue that may be complicated by lack of contractual backup. Check with a local accountant to be sure you are doing things correctly.

Whatever your accountant’s advice, the receipt for your landlord’s reimbursement is a required first step. Then you are no more than a box tick and a journal entry away from resolution.

1 Like

Thanks @Tut.

The fixed Asset is a Large Roller shutter door with internal personnel door, it was to replace an old up and over door so you are correct, it’s an improvement that I needed for better access.

Yes have other fixed assets, Not expecting a refund on those though!

Ok, will do when transfer received in my account.

My original thought when receiving the transfer was to have one line allocated to Fixed assets and asset’s subacount value of the Book Value (£1000)

Then add a second line allocated to a sundry income account with the remainder amount of ÂŁ3000 so total transaction of ÂŁ4000 showing a profit from selling the asset.

Then the purchase cost and depreciation would be the same, ÂŁ0 book value and ÂŁ0 Fixed assets - loss on disposal

This is probably not the correct way and journal entrys will probably need to be added.

I will contact him once the money has been received.

1 Like

I haven’t thought it through completely, but it sounds like your idea should work, too. One thing to discuss with your accountant is the fact that you have already had the use of the asset for several years, possibly even a major portion of its depreciable life. So you might not need to recapture some (or any) of the depreciation. In other words, the annual depreciation may have accurately represented the benefit you derived for using the door for a year. That is worth exploring.

1 Like

Thank you @Tut

1 Like

Do a revaluation of the asset after you have received the inflow from the landlord. Increase the size of the cost to 8k (debit asset credit revaluation Account in equity) and increase the accumulated depreciation too to match (debit Retained earnings in equity and credit accumulated depreciation).

You are good to go.

You may show the revaluation gain as some sort of gain for the year. (That would be recognising the gain through profit or loss which will flow into equity)

Check your accountant as had been suggested and he will know which rules apply

1 Like

I don’t think a revaluation is appropriate. The asset has not changed value. The amount @itmoto paid for it has changed.

1 Like

I would suggest that this should be recorded as a Disposal by sale with a Gain on disposal of $3,000.

On the original purchase of the Roller Door the OP had a 50% interest.

When the Landlord reimbursed the $4,000 contribution by the OP, the Landlord would have full ownership of the door, especially considering that the Roller Door is probably attached to the Landlord’s premises.

2 Likes

Thank you @Abeiku, @Tut and @generalegend I have read your comments several times.

My Landlord spoke about it as a refund of half of the total for the door.

I have just spoken to my accountant, he advised I should declare any amount above the asset book value as profit.

Is @generalegend’s approach the way to go as the Roller Door is attached to the Landlord’s premises and the sale represents the Landlord would have full ownership.

Would what I suggested in post #5 be the best method?

When receiving the transfer was to have one line allocated to Fixed assets and asset’s subacount value of the Book Value (£1000)

Then add a second line allocated to a sundry income account with the remainder amount of ÂŁ3000 so total transaction of ÂŁ4000 showing a profit from selling the asset.

Then the purchase cost and depreciation would be the same, ÂŁ0 book value and ÂŁ0 Fixed assets - loss on disposal

Thanks for your help.

Your accountant seems to be concerned only with recognition of the amount above book value as income. That’s an understandable perspective and makes things fairly simple to my mind, as there don’t seem to be any complex tax or legal questions to take into consideration. So I think the approach I mentioned in the third paragraph of post #4 is the most straightforward. Allocate the receipt of 4,000 to Fixed assets and the door’s subaccount. Then tick the disposal box. The 3,000 of gain will be transferred to Fixed assets - loss on disposal as a contra amount. This is one of the two sequences described in the final note of the Guide linked to in post #2.

Think of it this way, which is really what @generalegend was expressing: You initially bought half the door for 4,000. Your landlord bought the other half. You have depreciated your half by 3,000, leaving a book value of 1,000. Your landlord has now purchased your half for 4,000. So you no longer own any portion of the door and it can be disposed. The only difference between your situation and a more typical one is that assets can usually only be sold for scrap value. In your case, you were able to sell your half of the door for its original cost. So, while losses on asset disposal are more common, you were able to make a profit.

The reason I was originally reluctant to suggest disposal was my concern over more complex depreciation recovery requirements and the like. Your accountant has put those to rest.

1 Like

Tuts instructions for recording the disposal are correct. Be aware though that the Fixed assets - loss on disposal will appear as a negative amount in the “Expenses” section of the P&L report.

If desired, it is possible to move this to the “Income” section by going to settings -> Chart of accounts and changing the name by substituting “Gain” for “loss” and selecting the “Income” group.

2 Likes

Leasehold improvements definitely have different treatments in many jurisdictions and are not usually treated as fixed assets. They are generally described as “Leasehold improvements, at cost” on the balance sheet. If depreciation applies because it is an improvement the rate is generally quite low. In some instances, it could be regarded as a repair and you should consult a competent tax adviser. The proceeds of disposal would also generally be treated an income for tax purposes - any excess over the original cost could be either exempt or treated as a capital gain to which special rules could apply. The starting point would be to review the lease agreement and see what it says about improvements and then seek advice.

1 Like

Thanks for the comment’s once again.

I am still a little unsure how to proceed.

For now I have entered a New Receipt allocated to Fixed assets and asset’s subacount the full (Refund) value (£4000) which has zero’d the Purchase cost and now has a negative Book value (-3000) of the same amount as the Accumulated depreciation (3000)

Just to explain the situation more fully incase that help’s.

When I found the premesis it was far too large so the Landlord agreed to split the premesis, (which had a dividing wall anyway) I then had the government VOA office to come out and split the premesis officially so the square footage / business rates were correct.

My half of the premesis had an up and over door and access was from the other half of the premesis so that is the reason the new roller shutter with personnel (access) door was fitted.

There is no official lease agreement between myself and Landlord.
He said at the time, we will each pay half of the door and if I am still renting the premesis in 5 years he would refund my half.
That time has been and gone and he has stuck to his word and has refunded my half.

1 Like

Edit the Fixed Asset by selecting the Disposed Fixed Asset check box and insert the disposal date.

This will clear the Accumulated depreciation and move the -$3,000 to the P&L Account Fixed Assets - loss on disposal.

image

1 Like

Hi all.

I have a similar situation where one of my fixed asssets, a Van, has been written off in a road traffic accident and I am about to receive the settlement figure for the Van, the figure is greater than the book value in Manager.

Would I handle this exactly the same as previously advised about the roller shutter door (Above) so Allocate the settlement receipt figure to Fixed assets and the Van’s subaccount. Then tick the disposal box, add date and the gain over the top of book value will be transferred to Fixed assets - loss on disposal as a contra amount.

I believe this is correct but just wanted to confirm.

Thank’s.

1 Like

Substantively, what you describe is the correct approach, @itmoto. Since the earlier discussion, there have been some minor revisions to the fixed assets processes in the program, but they will mostly affect the reporting in your case, not how you handle anything. The Guide is up to date: https://www.manager.io/guides/9121. The process you discuss is the first option mentioned in the final note.

1 Like

Thanks @Tut I did see a slight update to the Guide. I’m running a slightly earlier version so it doesn’t apply just yet.
Will do as suggested. Thanks again.

1 Like