Accounting for the Sale of a Motor Vehicle

If the car was sold by the balance sheet date

If the car was sold by the balance sheet date, it is derecognised from property, plant and equipment, and the sales proceeds are compared with its balance sheet value — the initial value less accumulated depreciation and previously recognised impairment adjustments. The difference is recognised as profit or loss on disposal of the property, plant and equipment item.

Paragraphs 101–103 of Cabinet Regulation No. 775 require the revenues and costs related to derecognition of a property, plant and equipment item to be presented on a net basis in the profit or loss account. The transaction is disclosed in gross amounts in the annex to the annual statement.

If the car has not yet been sold at the balance sheet date

If, by the balance sheet date, the car is no longer used in operating activities, management has made a documented decision to sell it and actual sales activities have commenced, it no longer meets the definition of property, plant and equipment. The Law, Section 1, Paragraph one, Clause 17(c), provides that property, plant and equipment does not include an item held for sale, while Section 16, Paragraph two requires an asset to be classified according to the purpose for which it is held.

Therefore, the car is reclassified from long-term investments to current assets and presented under the inventory item “Finished products and goods for sale”, creating a separate sub-item if necessary. The balance sheet item “Long-term investments held for sale” is used only by companies that account for the relevant assets in accordance with international accounting standards.

When is reclassification justified?

• The car is no longer used in operating activities.
• Management has made a documented decision to sell it.
• Actual sales activities have commenced.
• The intention is supported, for example, by a management decision, a vehicle service defect report, a sales listing or offers from prospective buyers.

An intention merely to sell the car at some unspecified time in the future is not sufficient if the car continues to be used.

Depreciation is calculated up to the reclassification date. The car is transferred to inventories at its balance sheet value, and depreciation of property, plant and equipment is no longer calculated after reclassification.

At the balance sheet date, the car's balance sheet value is compared with its net realisable value. The Law, Section 24, requires a damaged unit of inventories to be measured at net realisable value if that value is lower. Net realisable value is the reasonably estimated selling price less costs directly related to the sale.

If the decision was made after the balance sheet date

If, at the balance sheet date, the car was still held for use and the decision to sell it was made only after the balance sheet date, it is not reclassified to inventories at the balance sheet date. However, it must be assessed whether the engine defect already existed at the balance sheet date.

If, after the balance sheet date, a vehicle service assessment is obtained or the car is sold, and this information confirms that its value had already been subject to a lasting impairment at the balance sheet date, this is an adjusting event in accordance with Sub-paragraph 26.3 of Cabinet Regulation No. 775. The selling price is used only to the extent that it reflects the car's technical condition and market conditions at the balance sheet date.

The car is presented in the balance sheet for the reporting year at a value of EUR 2000, while the sale is accounted for in the following reporting year. If the defect arose only after the balance sheet date, no impairment is recognised in the balance sheet for the reporting year. If the event is material, information about it is disclosed in the annex to the financial statement or in the management report.

How should the selling price be substantiated?

The company should retain evidence of the car's technical condition and market price.