Asset Disposals - Trade-ins and MV accident salvage

[VLW]

Hi All

I tend to overthink the process, I understand the simple disposals but I'm unsure of the following with the additional factors:

1.) If a trade-in, is it a clean disposal and addition, seeing one transaction as two completely separate items, as they are.. or is there some important steps that need to be adhered to

2.) A vehicle is in an accident and your insurance pays out, but a lesser value, due to you deciding to keep/salvage the car and repair it for re use.

- Does this vehicle get disposed or left as is?

- Where would you journal the insurance proceeds to.. insurance income, or take it against the cost of the vehicle or profit/loss.. being an insurance payout, I am guessing you would claim Output Tax?

- Wil the vehicle remain on the asset register, since it's been repaired, will the value change?

- What about the expenses incurred in fixing the vehicle, will this remain an expense or will this increase value?

TIA to anyone who can shed some light on the treatment, journal entries and how to reflect on asset register.



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[Andromeda]

Hi VLW, the scenario in 1.) is exactly as you see it. One is a disposal and the other transaction is an addition. The disposal and the addition is treated as any other disposal and addition in the asset register and in the books.

In the 2nd instance, the normal procedure is to credit the insurance proceed account. It may be that the auditors / reviewers will want to offset it against the cost of repair. Those expenses by the way are normally not an addition but are a maintenance cost and it may even be that the vehicle is further impaired.
Personally I treat the VAT is a credit input tax, in other words it is deducted from other inputs. There are no entries in the asset register.

[VLW]

Hi A,

Thank you for simplifying my thought pattern. What you have mentioned, I have done, and if you say there is no effect on the asset register, I assume that all remains the same, and you continue to depreciate as normal?

Just to be 100%, is the above how one would treat a code 3, that has been repaired? Fix up and expense to MV R&M and leave all else as is.

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[Andromeda]

Its probably best you read this interpretation of IAS 16 especially because it illustrates the difference between financial treatment and tax treatment. https://www.saica.co.za/integritax/2...of_repairs.htm

[VLW]

Thank you - very informative and put it into perspective.

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