en
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 value of assets includes expenses incurred for their acquisition, delivery, production, construction, installation, and assembly, as well as other costs that increase the value of the assets. However, expenses that the taxpayer is entitled to deduct from income and increases arising from the revaluation of fixed assets (the positive difference resulting from revaluation) are excluded.
So how are the obtained funds taxed in such cases? Expert Mahmud Abasquliyev clarifies this issue.
According to Articles 142.1 and 142.2 of the Tax Code, Article 142.1 states that income from the disposal of assets is the positive difference between the proceeds from the disposal of assets and the value of those assets determined in accordance with Article 143 of the Code. If a person transfers assets free of charge or at a discounted price, the income is determined as the difference between the market value of the asset and its value determined under Article 143.
Article 142.2 states that a loss from the disposal of assets is the difference between the proceeds from the disposal of assets and their value determined in accordance with Article 143. According to Article 114.7 of the Code, if the amount received from the disposal of fixed assets exceeds their residual value, the resulting difference is included in income.
Let us assume that the fixed asset is a machine.
Example 1: Information about the lathe machine on the balance sheet of “AA” LLC:
Initial value – 17,000 manats
Accumulated depreciation – 6,000 manats
Residual value – 11,000 manats
The company sells the machine for 13,000 manats. In this case, the taxable income of the company will be 2,000 manats.
According to Article 114.9 of the Tax Code, if the amount received from the disposal of fixed assets is less than their residual value, the difference is deducted from income.
Example 2: If the machine is sold for 9,000 manats, the taxpayer incurs a loss of 2,000 manats, which is deducted as an expense.
In which cases is the sale not recognized as income or loss? According to Article 144.1.3 of the Tax Code, if the proceeds from the disposal of an asset are reinvested in a similar or identical asset by the end of the following year, the sale is not recognized as income or loss.
Example 3: The machine is sold for 13,000 manats and the proceeds are reinvested in a similar machine. In this case, 11,000 manats are deducted as expenses, while the 2,000 manats difference is not recognized as taxable income and instead increases the value of the new machine.
Additionally, according to Article 115 of the Tax Code, the amount of 2,000 manats is directly added to the value of the similar machine, increasing its residual value.
According to Article 143 of the Tax Code, the value of assets includes expenses incurred for their acquisition, delivery, production, construction, installation, and assembly, as well as other costs that increase the value of the assets. However, expenses that the taxpayer is entitled to deduct from income and increases arising from the revaluation of fixed assets (the positive difference resulting from revaluation) are excluded.
So how are the obtained funds taxed in such cases? Expert Mahmud Abasquliyev clarifies this issue.
According to Articles 142.1 and 142.2 of the Tax Code, Article 142.1 states that income from the disposal of assets is the positive difference between the proceeds from the disposal of assets and the value of those assets determined in accordance with Article 143 of the Code. If a person transfers assets free of charge or at a discounted price, the income is determined as the difference between the market value of the asset and its value determined under Article 143.
Article 142.2 states that a loss from the disposal of assets is the difference between the proceeds from the disposal of assets and their value determined in accordance with Article 143. According to Article 114.7 of the Code, if the amount received from the disposal of fixed assets exceeds their residual value, the resulting difference is included in income.
Let us assume that the fixed asset is a machine.
Example 1: Information about the lathe machine on the balance sheet of “AA” LLC:
Initial value – 17,000 manats
Accumulated depreciation – 6,000 manats
Residual value – 11,000 manats
The company sells the machine for 13,000 manats. In this case, the taxable income of the company will be 2,000 manats.
According to Article 114.9 of the Tax Code, if the amount received from the disposal of fixed assets is less than their residual value, the difference is deducted from income.
Example 2: If the machine is sold for 9,000 manats, the taxpayer incurs a loss of 2,000 manats, which is deducted as an expense.
In which cases is the sale not recognized as income or loss? According to Article 144.1.3 of the Tax Code, if the proceeds from the disposal of an asset are reinvested in a similar or identical asset by the end of the following year, the sale is not recognized as income or loss.
Example 3: The machine is sold for 13,000 manats and the proceeds are reinvested in a similar machine. In this case, 11,000 manats are deducted as expenses, while the 2,000 manats difference is not recognized as taxable income and instead increases the value of the new machine.
Additionally, according to Article 115 of the Tax Code, the amount of 2,000 manats is directly added to the value of the similar machine, increasing its residual value.