Fixed Asset Disposal Proceeds - Fixed Asset Module / Capital Expenditure Module

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Nick Ogle A+ 6
Fixed Asset Disposal Proceeds - Fixed Asset Module / Capital Expenditure Module

Observation : The Fixed Asset Module does not appear to make provision for disposal proceeds or the end date of the depreciation calculation. The Cash Flow statement therefore will not show proceeds on disposal of Fixed Assets.

Solution Considered: I am thinking of creating within the Capital expenditure Module a separate Capital Expenditure Category and naming it Disposal Proceeds, then set the value to equal the negative Net book value at the end of the Contract.

Any views on this approach or alternative approach are welcome

Jun Yan A+ 124

Hey Nick,

The suggestion makes sense. I think just be careful using the NBV to negate the amount, as that will reflect cashflow based on the NBV and not necessarily the $ value of disposal.

Probably need to do it in 2 separate steps (good ole double entry). 1) the cash proceeds from sale via negative capex, and 2) the gain / (loss) on sale against the NBV through other revenue or other expenses to reflect the variance against NBV.

That should trigger the GST / VAT, as well as the corporate tax treatment of the disposal.

I'm sure you could develop a module that segregates the steps out, as this approach will trigger the alert checks, but it should get you the correct net effect you're after.

Hope that helps.


James Longden A+ 103

Hi Guys,

The main reason why we've not explicitly tackled this area is that it's a real can of worms - primarily from a numerical disaggregation perspective. The following steps through the problem and a simple solution.

The primary issue isn't so much the managing of the disposal proceeds / profit(loss) on disposal, it's the isolation of the differential impact of depreciation after the asset has been disposed of.

Using our main example model, if there is $1.0m in the closing Machinery & Equipment that is to be disposed of within the $5.2m bucket... order to back out the necessary depreciation post-disposal, we would have to start informing the model the remaining useful economic life of the items we're removing... that the above depreciation avoids double-dipping the Income Statement impact. From a modelling perspective, this is the tricky problem.

From a solution perspective, the approach I take is to isolate the items to be disposed of, much like you might see in a set of statutory accounts. Actually incredibly easy and involves minimal work.

1. Just insert another Fixed Asset Module, selecting the "Amounts" version:


 2. In the historical balance sheet, dial this back to a single category and maybe add a Sub-Total for clarity on where the data flows. Then split out whatever is due to be disposed of (as a numerical ### +/- exercise). 

3. In the newly inserted Fixed Asset module you can then add the disposal proceeds as negative cash (change the labelling) and add the book write-off at disposal. If anyone cares about matching, they can also enter the on-going depreciation for the months through to disposal date, i.e. Jul-22 and Aug-22.

Maybe also delete the alert, as this module is okay to have negative values.

The financial statements will now show the $800k as cash in the door, and the write-off of $200k, i.e. $1.0m vs $800k, as the loss on disposal. Crucially, the on-going main bucket of Machinery & Equipment doesn't need any fancy logic to handle out the depreciation on the asset post-disposal - main problem in this area.

Holler if the above not clear and I'll make a vid. Cheers. J.

Jun Yan A+ 124

Hey James,

Ooo, nice one! Yes, I did see the depreciation issue arise using the method I suggested.

This is a nifty overall solution, thanks James!


Tim McKendry X 1

This is a smooth solution but I'm curious how would you deal with a profit on sale eg if it was sold for say $1200?  (The $200 is a capital gain and wouldn't be taxed).  At the moment, I put the $200 to reserves but is there a better solution?



James Longden A+ 103

I assume you have the more advanced Corporate Taxation module in your model, Tim? I would put the $200 untaxed profit through as a permanent difference at a rate that synthetically creates the capital gains impact, so either the full $200 as a difference or (potentially, in Australia) $100 to create the 50% CGT impact.