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Cases where the sale of fixed assets is not recognized as income or loss
Cases where the sale of fixed assets is not recognized as income or loss
According to Article 143 of the Tax Code, the cost of assets includes expenses incurred for their acquisition, transportation, production, construction, installation, and assembly, as well as other costs that increase the value of the assets — excluding expenses deductible from income and increases resulting from the revaluation of fixed assets (positive differences from revaluation).
So, how are the proceeds in such cases taxed? Tax expert Mahmud Abasguliyev explains.
Articles 142.1 and 142.2 of the Tax Code state that income from the transfer of assets represents the positive difference between the proceeds from the transfer and the asset’s value determined in accordance with Article 143 of the Code. If assets are transferred free of charge or at a discounted price, the income is the difference between the market value of the transferred asset and its value determined under Article 143.
Article 142.2 defines the loss from the transfer of assets as the difference between the proceeds and the asset’s value determined under Article 143. According to Article 114.7 of the Code, if the amount received from the sale of fixed assets exceeds their residual (book) value, the difference is recognized as income.
Example 1: Information on a lathe machine recorded in the balance sheet of “AA” LLC:
Initial cost: 17,000 manats
Accumulated depreciation: 6,000 manats
Residual value: 11,000 manats
The company sells the lathe for 13,000 manats. In this case, the taxable income is 2,000 manats (13,000 – 11,000).
Under Article 114.9, if the sale price is lower than the residual value, the difference is deducted from income.
Example 2: If the same machine is sold for 9,000 manats, the taxpayer incurs a loss of 2,000 manats. However, since the asset was acquired with the company’s own funds, the remaining book value can be deducted as an expense to bring its balance to zero. Naturally, there may be various reasons for selling an asset below its cost, but the taxpayer must provide valid justification for doing so.
Now, in what cases is the sale of the asset not recognized as income or loss? According to Article 144.1.3 of the Tax Code, if proceeds from the liquidation or disposal of an asset are reinvested into a similar or equivalent asset by the end of the year following the year of disposal, or if the asset is destroyed, liquidated, or disposed of beyond the owner’s control, the sale is not recognized as income or loss.
Example 3: “AA” LLC sells a lathe for 13,000 manats and reinvests the proceeds into a similar new machine. The company deducts 11,000 manats as an expense, and the remaining 2,000 manats (13,000 – 11,000) are reinvested into the new asset, increasing its value without being treated as taxable income.
Additionally, under Article 115 of the Tax Code, without considering the repair limit, this 2,000 manat is directly added to the cost of the new machine, increasing its residual value.
According to Article 143 of the Tax Code, the cost of assets includes expenses incurred for their acquisition, transportation, production, construction, installation, and assembly, as well as other costs that increase the value of the assets — excluding expenses deductible from income and increases resulting from the revaluation of fixed assets (positive differences from revaluation).
So, how are the proceeds in such cases taxed? Tax expert Mahmud Abasguliyev explains.
Articles 142.1 and 142.2 of the Tax Code state that income from the transfer of assets represents the positive difference between the proceeds from the transfer and the asset’s value determined in accordance with Article 143 of the Code. If assets are transferred free of charge or at a discounted price, the income is the difference between the market value of the transferred asset and its value determined under Article 143.
Article 142.2 defines the loss from the transfer of assets as the difference between the proceeds and the asset’s value determined under Article 143. According to Article 114.7 of the Code, if the amount received from the sale of fixed assets exceeds their residual (book) value, the difference is recognized as income.
Example 1: Information on a lathe machine recorded in the balance sheet of “AA” LLC:
Initial cost: 17,000 manats
Accumulated depreciation: 6,000 manats
Residual value: 11,000 manats
The company sells the lathe for 13,000 manats. In this case, the taxable income is 2,000 manats (13,000 – 11,000).
Under Article 114.9, if the sale price is lower than the residual value, the difference is deducted from income.
Example 2: If the same machine is sold for 9,000 manats, the taxpayer incurs a loss of 2,000 manats. However, since the asset was acquired with the company’s own funds, the remaining book value can be deducted as an expense to bring its balance to zero. Naturally, there may be various reasons for selling an asset below its cost, but the taxpayer must provide valid justification for doing so.
Now, in what cases is the sale of the asset not recognized as income or loss? According to Article 144.1.3 of the Tax Code, if proceeds from the liquidation or disposal of an asset are reinvested into a similar or equivalent asset by the end of the year following the year of disposal, or if the asset is destroyed, liquidated, or disposed of beyond the owner’s control, the sale is not recognized as income or loss.
Example 3: “AA” LLC sells a lathe for 13,000 manats and reinvests the proceeds into a similar new machine. The company deducts 11,000 manats as an expense, and the remaining 2,000 manats (13,000 – 11,000) are reinvested into the new asset, increasing its value without being treated as taxable income.
Additionally, under Article 115 of the Tax Code, without considering the repair limit, this 2,000 manat is directly added to the cost of the new machine, increasing its residual value.