Asset bought and sold in same financial year

[accsvalue]

An engineering company buys and sells a motor vehicle at a loss in the same financial year. How should it be recorded in the accounts? Is it a simple case of loss on sale of motor vehicle? Are there any depreciation/capital allowance/balancing allowance issues?

 

[dereko1969]

I would think it should be a red flag for Revenue if they see it in an audit. Was it sold to a connected party?

 

[mandelbrot]

An engineering company buys and sells a motor vehicle at a loss in the same financial year. How should it be recorded in the accounts? Is it a simple case of loss on sale of motor vehicle? Are there any depreciation/capital allowance/balancing allowance issues?

Off the top of my head, I'd say the loss would be relieved as a Balancing Allowance. The loss on disposal of asset, which will be an expense in the P&L of the business, will be added back, as is always the case. IIRC you only get a wear & tear allowance when the asset is still owned and in use at the period end for the purpose of the trade. So what you have is an asset which has a tax written down value at date of disposal equal to its cost. The proceeds on disposal are less than this TWDV, so the difference is a balancing allowance.

That's purely off the top of my head, without referring to anything, so someone else might correct it if I'm incorrect...

EDIT: I correct myself below... (see post #5)

I would think it should be a red flag for Revenue if they see it in an audit. Was it sold to a connected party?

I don't see why its any riskier than any other disposal of a vehicle, assuming there's a valid explanation for how/why they decided to sell a nearly new vehicle (plenty of businesses in recent times may have been forced to do so for cash flow reasons).

 

[dereko1969]

Off the top of my head, I'd say the loss would be relieved as a Balancing Allowance. The loss on disposal of asset, which will be an expense in the P&L of the business, will be added back, as is always the case. IIRC you only get a wear & tear allowance when the asset is still owned and in use at the period end for the purpose of the trade. So what you have is an asset which has a tax written down value at date of disposal equal to its cost. The proceeds on disposal are less than this TWDV, so the difference is a balancing allowance.

That's purely off the top of my head, without referring to anything, so someone else might correct it if I'm incorrect...



I don't see why its any riskier than any other disposal of a vehicle, assuming there's a valid explanation for how/why they decided to sell a nearly new vehicle (plenty of businesses in recent times may have been forced to do so for cash flow reasons).

Yes, all I'm saying is that it would likely raise questions in an audit situation.

 

[mandelbrot]

Having gone away and read the relevant legislation at lunchtime (yes, my life is that exciting), I will correct myself - it looks as though you're on a sticky wicket - there's no provision to allow any wear & tear or a balancing allowance on the asset, so it looks like you'll have to take a CGT loss on the asset, which may be of limited use, as it can only be used against a CGT gain in the current period or a future period...