Could anyone clarify for me please the accounting treatment when resigning director takes some assets with him, which have been fully depreciated.
The company agreed to that instead of paying him redundancy payment.
Do we need to revaluate the asset by Dr asset Cr rev. reserve; then Cr asset Dr P&L?
Thanks!
Replies (4)
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You can’t have a RR for assets that you no longer own, especially when RR’s no longer exist in this FRS102/5 world.
Surely the market value of the assets should go on his P11D?
dr FA cr P&L (surplus of reveal of tangible fixed assets)
cr FA dr P&L (redundancy)
If they’d paid him the redundancy (<£30k tax free) then he had purchased the items, that’s a different story. The company would be liable to CT on the sale, but as the redundancy payment would presumably be the same amount(?!), the P&L & PCTCT affect would be nil.
...... especially when RR’s no longer exist in this FRS102/5 world.
Not sure I entirely agree with this. Under FRS 102/5 and CA2006 you can have as many reserves of as many different names as you like.
The main distinction brought in by FRS 102 is that investment asset unrealised gains (and losses) have to specifically be included in a FV reserve and don't hit the P&L, whereas other unrealised gains/losses are no longer required to be recognised as a revaluation reserve and hit the P&L. Whereas before these were both put into the reval reserve via the STRGL.
However, an unrealised gain (and connected deferred tax) is not distributable (generally) under CA2006 and so it is advised that this is either disclosed in the accounts or reclassified to a..........reval reserve or as I prefer "the big gain on FRS 102 transition I bunged through to make my company solvent or look better reserve". This prevents directors from mistakenly voting illegal dividends.
Dr Redundancy cost
Cr Gain on disposal
Dr Accumulated Depreciation (Re depreciation to date re the assets)
Cr Fixed Assets (original cost of the assets disposed)
Dr Gain on disposal (may be nil)
Then deal with proceeds in CA computation
I would ensure that a properly documented agreement re the redundancy (maybe a compromise agreement) was executed and the value re same was detailed and the assets taken had a MV equivalent to this sum; as this is unlikely by chance I suspect there needs to be a cash adjustment.