# Asset bought and sold in same financial year



## accsvalue (11 Apr 2013)

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?


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## dereko1969 (12 Apr 2013)

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?


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## mandelbrot (12 Apr 2013)

accsvalue said:


> 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)*



dereko1969 said:


> 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).


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## dereko1969 (12 Apr 2013)

mandelbrot said:


> 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...
> 
> ...


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


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## mandelbrot (12 Apr 2013)

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...


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