trade-in assets – recognizing the accounting and physical inventory impact bob mahaney, cpps...
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![Page 1: Trade-In Assets – Recognizing the Accounting and Physical Inventory Impact Bob Mahaney, CPPS Manager Program Accounting and Finance MD Anderson Cancer](https://reader036.vdocument.in/reader036/viewer/2022082518/56649ee45503460f94bf3293/html5/thumbnails/1.jpg)
Trade-In Assets – Recognizing the Accounting and Physical
Inventory Impact
Bob Mahaney, CPPS
Manager Program Accounting and Finance
MD Anderson Cancer Center
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Who’s In The Room?
• New member this year?
• First NES?
• Type of business• University• Contract Property/Federal• State/Local Government• Private
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Trade-In Assets
The disposal of property through trade-in is a simple process on the surface.
“Used property is offered to the vendor from whom similar equipment (in most cases) is being purchased.”
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Have you heard this one?
“I save the institution money because I trade-in old equipment when I buy new equipment.”
“That oscilloscope can’t be on my inventory. I traded it in on a new one last year.”
“The vendor picked up the trade-in equipment already. Did they sign what?”
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Financial Considerations
• Trade-in assets can have a dramatic impact on the margin.
• Profit or non-profit, we all have a margin.
• Assets that are not fully depreciated have loss potential.
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What actually causes the loss?
• Trading in assets with remaining useful life.• Asset has a net book value (NBV).• NBV = Cost minus Accumulated Depreciation.
• Vendors Trade-in Credit less than NBV.
• Additional cost paid by institution to remove trade-in asset.
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Calculating the Financial Impact
Asset Cost $ 8,400,000
Useful Life 84 Months
Remaining Life 24 Months
Accumulated Depreciation $ 6,400,000
NBV $ 2,000,000
Trade-in Credit from Vendor $ 1,000,000
Trade-in Loss $ 1,000,000
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Calculating the Impact
Asset Cost $ 8,400,000
Useful Life 84 Months
Remaining Life 24 Months
Accumulated Depreciation $ 6,400,000
NBV $ 2,000,000
Trade-in Credit from Vendor $ 1,000,000
Estimated Sales Proceeds $ 2,200,000
Gain on Sale $ 200,000
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Mitigating Financial Impact
• Effective Trade-in policy.
• Incorporates the gain/loss calculation into the buying decision.
• Identifies whether cash sale off trade-in asset is an option.
• Evaluate cash sale price verse vendor’s trade-in credit.
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Mitigating Financial Impact(contd.)
• Effective Trade-in policy (contd.).
• If asset has 50% of useful life remaining, require the department to justify giving up an asset with that much life remaining.
• Require sign-off by department head or Property Administrator for the department.
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Physical Asset Considerations
Physical Transfer of the Trade-in Asset
• Trade-in asset may remain in-service until close to delivery date of new asset.
• Larger assets can require a professional to uninstall and prepare for shipping.
• Transfer must be documented.
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Physical Asset Considerations(contd.)
Groups that may need to be involved.
• Environmental Health & Safety.• Remove radioactive devices.• Prepare specialized documentation for transport of
hazardous chemicals/material
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Physical Asset Considerations(contd.)
• Facilities.• Ensure building integrity is maintained for large
asset removal.• Provide best pathway for asset removal
• Campus or City Police• Manage traffic or security issues
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Ownership Transfer
Critical part of the trade-in process.
• Ownership transferred to vendor at pick up.
• Clear documentation is required.
• Audit considerations.
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Ownership Transfer(contd.)
Documentation Requirements.
• Bill of lading signed by vendor’s representative.
• Documents trade-in assets under control of vendor.
• Signed and dated by carrier and Property Custodian
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Ownership Transfer(contd.)
• Institutions Trade-in Asset Form (hardcopy).
• Signed and dated by vendor or carrier.
• Signed and dated Property Custodian
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Ownership Transfer(contd.)
• Sufficient to met institutions audit needs.
• Original ownership transfer documents sent to Finance Department for final processing.
• Remove trade-in asset from inventory.
• Add trade-in credit value to replacement asset.
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Trade-in Policy
• Supports an accurate and correctly valued asset inventory.
• Supports good financial decisions.
• Provides controls to assure financial analysis of assets acquired through trade-in.
• Addresses the physical removal and ownership transfer of the trade-in asset.
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Questions