Posting Retirements from Fixed Assets

Last year, the Bike Company purchased a cleaning robot to clean the glass surfaces on the outside of the office building. However, soon after the first uses,the cleaning robot fell off the roof of the building and was damaged to a degree where it could not perform its intended operations. Kevin's task is to post the asset scrapping in asset accounting.

Before he can post the fixed asset scrapping, Kevin has a few questions for Lisette.

He asks her what he needs to consider when scrapping a fixed asset. Lisette tells him, that scrapping is a retirement without revenue of an asset from the asset portfolio. When this posting option is used, the system creates a loss made on asset retirement posting in the amount of the netbook value being retired.

Kevin wonders how the netbook value is then calculated.

Lisette tells him to take the amount of the original acquisition and production costs value. From this amount he needs to subtract the amount of value adjustments. That's how you get the asset netbook value.

Lisette shows Kevin a graphic for him to understand the initial situation:

1. A cleaning robot purchased in the previous year for €12,000, is scrapped on the 6th of March of the current fiscal year. The useful life is different for each accounting principle. This resulted in different depreciation values.

   It is irrelevant for the retirement of the asset whether the calculated depreciation is already posted or only planned.

2. The loss of €9,200 from the Local GAAP view results from the original acquisition value €12,000 minus the accumulated depreciation from the previous year (€2,400) and the proportional depreciation of the current fiscal year (€400).
3. The loss of €7,333 from the IFRS view results from the original acquisition value (€12,000) minus the accumulated depreciation from the previous year (€4,000) and the proportional depreciation of the current fiscal year (€667).

Lisette has prepared another graphic for Kevin a graphic to visualize for him the process posting of the scrapping.

The system determines the asset retirement period based on the asset value date and the period control method of the period control key of the depreciation key. The program automatically calculates how long depreciation is allowed to be posted for the asset.

For our example:

• The asset value date: 6th of March in the current year
• The period control method: Pro rata up to mid-period at period start date.

The depreciation is still posted in January and February. For the calculation of the loss, it is sufficient that the depreciation is planned. The depreciation run can take place after the transaction.

When Kevin asks what the deactivation date means for the fixed asset she continues her explanation.

On the entry date, the asset no longer belongs to the asset portfolio.

The transaction type is proposed automatically: 200, Retirement without revenue of prior-year acquisitions.

Prior-year acquisitions mean that the asset was already included in the balance sheet because it was acquired in the previous fiscal year.

If an asset that was capitalized in the current fiscal year is scrapped, you must use the transaction type: 250, Retirement without revenue of current-year acquisitions.

In the case of partial retirement, the transaction type must be entered manually.

As part of the new corporate strategy, the Bike Company wants to keep a 100% electric vehicle fleet. Any non-electric company cars owned by the company are to be sold this year.

Kevin’s colleague from accounts receivable accounting has posted the sales invoice for a diesel powered vehicle. The accounting posting debited the customer account and credited the revenue from asset sales and tax). Kevin’s task is to record the retirement in fixed asset accounting.

Kevin wonders if his colleague in accounts receivable could also post the retirement of the fixed asset.

What does the calculation look like when the asset finds a buyer?

The gain or loss result depends on the balance of the following:

12345
+ Amount of the original APC value
- Amount of value adjustments
= Asset Net Book Value
- Revenue (for example, the sales price) that is received for the asset
= Loss/Gain

In this example, the company receives a net revenue of €4,000 for the company car and this leads to the following for local GAAP and IFRS accounting:

• A loss of €5,200 is recorded in the Local GAAP from the original acquisition value €12,000 minus the accumulated depreciation from the previous year €2,400 minus the €400 proportional depreciation of the current fiscal year and the revenue of €4,000.
• A loss of €3,333 for the IFRS books results from the original acquisition value €12,000 minus the accumulated depreciation from the previous year €4,000 minus the €667 proportional depreciation of the current fiscal year and the revenue of €4,000.