I purchased a Fixed asset (Car) but part of the purchase was a trade-in of a previous fixed asset (also a Car).
The Trade-in was part of the final settlement so there was no actual cash involved.
How do I reflect this correctly?
You have not furnished nearly enough information for anyone to answer your question. What are the complete circumstances surrounding the car traded in?
Ok, firstly I am not a financial person and Manager does EVERYTHING for me!
- Car1 was set as a fixed asset and traded in on Car2
- Car2 was partially funded by the trade-in of Car1 and the remaining amount was paid in cash. All that is reflected correctly.
- The New Asset (Car2) is entered correctly with the full purchase price.
- Car1 is reflected as Disposed of but I don’t know how to show the trade-in against that asset.
- The depreciation of Car1 is correct.
Is this better info?
Not nearly enough. Was there any remaining book vale for Car 1? How was the trade-in valued? How was the transaction taxed in your jurisdiction? Is there a need to recapture prior depreciation? Etc.
@Mark was correct. Your questions should really be answered by a local accountant. Come back to the forum if you cannot figure out how to implement the accountant’s instructions in Manager. But do not look to this forum for accounting or tax advice. No matter the good intentions of members who may try to help, you have stepped into a regime where the potential for adverse consequences is high.
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In support of @Mark and @Tut please do a web search on “fiscal consequences of trading in a car” and you will find a phletora of posts related to numerous jurisdictions. We do not even know your country, but even if we did the tax rules may have changed. Because of this you are advised to consult a local accountant or tax consultant to be sure that you handle this legally. Often trade-ins affect tax payments.
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Thanks – I will remove myself from the forum.
Why would you do that? You just need to solicit an accountant or tax consultant about what is fiscally accepted within your jurisdiction. Once you know you can post it in this forum on how to get that done in Manager.
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@Bob_Nixon, there is no need to remove yourself from the forum. Just understand its limitations to advice about the Manager application. While you can pick up a lot of accounting knowledge here, that is not the purpose of the platform. Particularly in your specific situation, local laws dealing with depreciable assets vary greatly around the world. The program will handle whatever is required for your jurisdiction. But very few of the forum’s members are likely to be knowledgeable about exactly what is required in your particular case. There is no doubt the proper course of action will be determined by local law, prior accounting treatment of the car you traded in, length of time you owned it, how it was depreciated, specifics of the purchase arrangements for the new car, potential government simplifications for businesses of your type and size, possible government incentives for purchases of this type, and a myriad of other details. Other forum members are simply not qualified to render opinions about all of that. Nor do we have access to the necessary information, even if we were qualified.
So do not believe you are being rebuffed. Several very experienced people are trying to give advice that will help keep you out of trouble with your local authorities. Abuse (or simple misunderstanding) of regulations governing fixed assets—and cars in particular—is one of the most frequent areas of accounting difficulty (and fraud) worldwide. So it receives heightened attention from authorities everywhere. Spending a few dollars on professional, local advice on this subject is always a worthwhile investment.
The new website has a new feature where you can try to identify accountants near where your business operates, see https://www.manager.io/accountants
An example that explains why this is complex see https://mileiq.com/blog/business-vehicle-trade-in-tax it states:
Old tax law: Tax-deferred exchange of trade-in business car
Until 2017, you could do a tax-deferred exchange of a business vehicle: also known as a Section 1031 exchange. With such an exchange, there would be no tax due on the sale of your trade-in. Instead, the tax basis (value for tax purposes) of the trade-in would be subtracted from the basis of the new vehicle. Such tax-free exchanges were done all the time when business owners traded in their old vehicles for new.
and
The new law and trade-in vehicles
Unfortunately, the new tax law eliminates Section 1030 tax-free exchanges for all personal property, including vehicles. Tax-free exchanges are still allowed for real property. The prohibition took effect on January 1, 2018. This means that you may no longer treat the trade-in of a business vehicle as a non-taxable event. Instead, when you trade-in an old vehicle for a new one, you must pay income tax on your gain, if any.
And, of course, that example applies to only one jurisdiction and one aspect of trading in a car on a new one. But it is an excellent illustration of why you need competent, local advice.
Hi Bob, putting the taxation issue to one side, this can be solved by your accountant at the end of the year and he can make the necessary adjusting entries. If you want to enter an accounting transaction to record the movements of the transaction, you could do this by a simple General Journal Entry. You could create a new Asset Account for Car 2 and then make the following entry / Credit the Asset Account of Car 1 and Debit the Asset Account of Car 2 with the Trade-in amount. Then for the payment in Cash, assuming this is from a Cash-on-Hand account (Asset Account), then you simply Credit the Cash-on-Hand account and Debit the Asset Account of Car 2 with the amount you paid in cash. In simple terms this will reflect what you have done when acquiring the new asset. At the end of the year when you sit down with your accountant I would provide him with the necessary source documents for him the make the adjusting entries prior to completion of the financial statements.
Hi Bob, thought I would follow up with a visual to maybe better explain my reply above. As you can see in the Accounting Cycle you as the Bookkeeper doing the data entry, there is a time for your Accountant to make any required adjustments before the Closing Period.
Many thanks.
TUT sent a brief response as well that helped immensely!
I have now got both assets reflecting the correct amounts.
Thanks.