Often in the enterprise the situation occurs when certain assets are subject to liquidation due to expiration of useful life. How to reflect in accounting such liquidated fixed assets (hereinafter – FA)?
Registration of the transaction
Before proceeding with the liquidation of FA, you must first determine which assets are to be liquidated. To determine the unsuitability of the FA for further use, the head of the enterprise creates a permanent commission (item 41 of Recommendations No. 561). Such a commission, after receiving instructions from the head of the enterprise, must carry out a direct inspection of the object to be written off and decide on its liquidation (items 41 and 43 of Recommendations No. 561), as well as:
- establish the reasons for non-compliance with the criteria of the asset;
- determine the persons responsible for premature disposal of fixed assets from operation, to make proposals for their responsibility;
- determine the possibility of sale (transfer) of the object to other enterprises, organizations and institutions or the use of individual components, parts, materials that may be obtained as a result of dismantling, liquidation of fixed assets, establish their quantity and value.
Based on the review of FA, the commission must draw up acts on the write-off of fixed assets. Usually, such a decision is documented as:
- an act of writing off of fixed assets;
- an act on the write off of vehicles.
Today there are current forms of such acts, approved by Order of the Ministry of Finance No. 818 of September 13, 2016. But if desired, you can develop other acts for writing off. There is only one condition: they must contain all the mandatory details of the primary document listed in item 2 of Art. 9 of Law of Ukraine “On Accounting and Financial Reporting in Ukraine” No. 996-XIV of July 16, 1999.
The act is drawn up by the commission in two copies:
- the first is transferred to the accounting department to add information to the accounting registers, which is noted;
- the second – remains with the financially responsible person and is the basis for the transfer to the warehouse of spare parts remaining after liquidation, as well as various materials, components and other waste.
Based on the received act, the accounting department makes appropriate records on the liquidation of the FA in the Inventory card of the FA. In addition, you will need an order (instruction) from the head to liquidate the facility.
Accounting
The FA, which the commission found unfit for use, and the head of the enterprise agreed with it, should be written off of the balance (item 33 of NAS 7).
For this purpose, based on the act on write-off of FA the accounting department carry out the following operations:
1) stop accruing depreciation from the month following the month of liquidation of the FA (item 29 of NAS 7). If the production method was used – from the date following the date of liquidation of the FA;
2) write off the accrued depreciation for the period of use of the equipment through the conduct of Dt 13 – Ct 10;
3) write off the residual value of the FA to other costs in the period in which the object of the FA was liquidated, conducting Dt 976 – Ct 10;
4) all costs related to the liquidation of the FA (salaries of personnel engaged in dismantling of the FA, accrued USC on this salary, materials used during dismantling or disassembly of the FA, services of third parties, etc.) are written off to other costs of the period, conducting Dt 976 – Ct 66, 65, 631, 20, 22, etc.;
5) if after disassembly or dismantling of the FA the stocks are formed (spare parts, building materials, etc.), they are posted on the balance sheet. At the same time, if:
- the company plans to sell them, the inventories are posted at net realizable value;
- the company plans to use them in its business activities, then such assets are accounted for at the price of possible use.
There are two approaches to accounting for inventories from liquidation:
1) through the recognition of the value of received income reserves (Dt 20, 22, 28 – Ct 746):
2) through the separation from the value of the liquidated FA of stocks before the liquidation of the FA (Dt 20, 22, 28 – Ct 10).
Tax accounting
Income tax
Income tax payers who are low-income entities reflect in tax accounting transactions for the liquidation of FA in accordance with accounting rules. Such income tax payers determine the object of taxation only on the basis of accounting data without adjusting it for tax differences contained in chap. III of the Tax Code.
If the FA is liquidated by a high-income enterprise or a low-income volunteer, they must apply tax differences during the implementation of this transaction, as well as during the sale of the FA, namely:
1) from the month following the month of liquidation of the FA, stop accruing depreciation on them in tax accounting, and therefore such an asset no longer participates in depreciation differences;
2) in the case of liquidation of the FA the tax differences should be applied, which are reduced to the fact that the financial result of the enterprise before taxation will have to:
- increase by the amount of the residual value of the FA, determined in accordance with NAS or IFRS (paragraph 4, item 138.1 of the Tax Code);
- reduce by the amount of the residual value of the FA, determined according to the rules established by Art. 138 of the Tax Code (paragraph 3, item 138.2 of the Tax Code);
3) in case of liquidation of a non-productive FA, the pre-tax financial result must be increased by the amount of the residual value of the liquidated asset, determined in accordance with NAS or IFRS (paragraph 5, item 138.1 of the Tax Code).
In the case of single tax payers of groups 3 and 4, the liquidation of the FA will not be subject to tax accounting.
VAT
As a general rule, the liquidation of the FA at the sole discretion of the payer is a supply for VAT purposes (item ‘f’ of subitem 14.1.191 of the Tax Code, item 189.9 of the Tax Code). Therefore, in the case of liquidation of the FA, it seems that the VAT payer will have to accrue tax liabilities in accordance with the value of the FA, but not lower than its book value (item 188.1 of the Tax Code).
But lawmakers have made sure that businesses do not suffer from the fact that their assets have failed or become unusable. Therefore, item 189.9 of the Tax Code stipulates that in case of liquidation (destruction, dismantling or transformation) of FA and termination of use of the asset for its original purpose, it is not necessary to accrue tax liabilities.
In order not to accrue tax liabilities under item 189.9 of the Tax Code, it is necessary to prepare documents that would indicate that the FA is not suitable for further operation, can not be repaired and destroyed or dismantled.
According to the Ministry of Finance set out in the General Tax Consultation, approved by Order of the Ministry of Finance No. 673 of August 3, 2018 (hereinafter – General Tax Consultation No. 673), in order not to accrue tax liabilities, it is sufficient to have:
- the act of writing off if the FA;
- conclusion of the expert commission, which confirms that the FA cannot be used in the future for its original purpose.
In addition, if the cause of liquidation was a natural disaster, the supporting documents may be:
- certificate of the Chamber of Commerce and Industry of Ukraine, which confirms the fact of force majeure, obtained in accordance with the Law of Ukraine “On Chambers of Commerce and Industry of Ukraine”;
- act certifying the fact of fire, drawn up in accordance with the provisions of the Procedure for registration of fires and their consequences, approved by Resolution of the Cabinet of Ministers no. 2030 of December 26, 2003, signed by a commission consisting of at least three persons, including a representative of the territorial body of the State Emergency Service of Ukraine, representative of the administration (owner) of the object, victim;
- data (extract) from the relevant register on the termination of ownership of fixed assets in the event of their complete destruction in accordance with the procedure specified in Art. 349 of the Civil Code of Ukraine;
- extract from the Unified Register of Pre-trial Investigations, which certifies the fact of registration of information on a criminal offense, obtained in the manner prescribed by the Criminal Procedure Code of Ukraine, in case of theft of fixed assets;
- other documents that, in accordance with the law, confirm the fact of destruction, theft of fixed assets or non-production assets.
In order not to accrue VAT liabilities, such documents should be present only at the time of inspection. You do not need to send controllers without their instruction.
