Accounting for the destruction of a fixed asset - it's worth knowing!

The fixed asset has been damaged and its repair is unprofitable? Do you have to liquidate it and remove it from the fixed assets register? See how correctly the settlement of the destruction of the fixed asset should look like and what the tax consequences are.

Fixed assets - liquidation step by step

Removal of a damaged fixed asset is a process that consists of two stages:

1. Withdrawal of a fixed asset from the company's fixed assets register on the basis of an internal document "LT- liquidation of a fixed asset",

2. Physical removal of a fixed asset confirmed by a fixed asset liquidation protocol.

As you can see, the liquidation of a damaged fixed asset requires as many as two documents.

LT document - what should it contain?

The internal document "LT- disposal of the fixed asset" should contain:

• document sequence number,

• the name of the entity drawing up the letter along with the address,

• date of issue,

• name of the liquidated fixed asset,

• sequence number of the fixed asset,

• the cause and method of liquidation (adjudicated by the liquidation commission),

• entrepreneur's signature,

• signature of an authorized accounting employee,

• signatures of members of the liquidation commission,

• other comments.

The winding-up committee is an internal unit established within the enterprise. If we are dealing with a sole proprietorship, the commission will, as a rule, consist only of the entrepreneur.

The tangible asset liquidation report should be drawn up on the day of its physical removal from business activity. A properly prepared liquidation report should include:

• consecutive number of the protocol,

• date and place of preparation,

• data of persons drawing up the document and participating in the liquidation,

• the name and identification number of the fixed asset,

• method of liquidation of the fixed asset (e.g. scrapping),

• company name and address or company stamp,

• signatures of persons participating in the liquidation of the fixed asset,

• attachments (e.g. confirmation of the scrapping fee).

Settlement of the destruction of a fixed asset and income tax

On the basis of the fixed asset liquidation protocol, the entrepreneur may include the non-depreciated part of the asset's value in the company's tax costs. Therefore, the liquidation of a fixed asset may be a tax cost. It should also be remembered that in the case of fully depreciated fixed assets, their liquidation will not affect the income tax. Expenses incurred in connection with decommissioning may also be a tax deductible cost, e.g. the cost of dismantling a damaged machine or scrapping a vehicle wreckage.

An entrepreneur may recognize as tax deductible losses in fixed assets that:

• they arose not because of his fault or because of non-compliance with the regulations,

• arose as a result of random events, impossible to avoid and predict.

It is in the interest of the taxpayer to properly document the loss. It can be an internal document describing the destruction, as well as an external one, e.g. a police report. Pictures can be attached to the documentation. It is worth adding that if the damaged fixed asset was insured, the benefit paid constitutes income for the entrepreneur, which should be properly taxed. Taxpayers keeping the KPiR should then show it in col. 8 - other revenues.

Fixed assets - liquidation and VAT

The liquidation of the fixed asset does not require the correction of the sum of the VAT deducted by the entrepreneur. On the other hand, the entrepreneur has the right to deduct VAT from the expenses related to the liquidation of the fixed asset when it was related to the taxable activity.