Accounting For The Expense Of Selling Fixed Assets

if a company paid big expenses (shipping cost and clearance ..etc) to move the fixed assets abroad in order to sell it next year, but the selling transaction net ended before 31.12.2015, should the accountant record and post these expenses to the income statement, or leave it in balance sheet to be managed in the next year by the entry of selling entry?

Answers

Jeff McGlaughlin Corporate Controller • January 15, 2016

The shipping costs were incurred in 2015 and are not capitalizable as part of the fixed asset, so they should be expensed in 2015.

Anonymous Auditing director • January 17, 2016

Thanks a lot
but the company sold all its machines to one of the partners with abroad delivery within January 2016, and the expenses of shipping are more than the net profit of 2015, so if we didn't capitalize the expenses (big amount) then the net profit of 2015 will become net loss!
what is your recommendation:
1- expense the shipping cost and turn the net profit into net loss 2015, or
2- capitalize the cost in 2015 in order to manage it with the entry of selling in2016?

Anonymous Controller • January 18, 2016

Good question.....What were the terms of the sale? Did you just move them and then found buyers, or were there already buyers in place?

Richard Archer Director - Governance & Risk Advisory • January 20, 2016

If your company is in the business of buying and selling equipment, you may not have a choice but to expense the shipping in 2015 as part of the normal cost of continuing operations. However, if this is a rare event selling equipment that is no longer used, then you should consider the question of matching revenues and expenses - When did your company fulfill all the criteria that would allow you to recognize revenue from the sale? Just as you normally can't recognize revenue in advance of fulfilling the recognition requirements, you may be able to defer expenses directly related to the sale, but paid prior to the revenue event, in order to properly calculate the net gain or loss from the sale, which after all is the relevant revenue consideration.

You may have a different issue that affects the revenue & expense recognition decision, if the sale was made to a related party. You wrote that the equipment sale was made to one of the company's partners overseas. What is the corporate relationship between your company and the partner? Were you selling to a partner and your company is retaining an interest in the partner or in a JV with the partner and the JV will use the equipment? You should look at those details and how they potentially affect the revenue & expense recognition standards.

No matter what, if you are asking should we defer so the company can avoid a loss in 2015, you are asking the wrong question and playing the game of making transactions in order to manage reported profits could get you into trouble. It is probably a concern of the senior execs, but is the result of properly applying the accounting standards, not the justification for determining the accounting standard.

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Accounting For The Expense Of Selling Fixed Assets

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