How to account for the disposal of a depreciating asset
The disposal of a depreciating asset is a balancing adjustment event. You must compare the asset's termination value with its adjustable value at that time. If the two figures are different, the difference is the balancing adjustment amount.
Generally, the termination value is the amount you receive for the asset on its disposal. It also includes the market value of any non-cash benefits such as goods or services you receive for the asset. The termination value is reduced to exclude GST payable if the disposal is a taxable supply.
A depreciating asset's adjustable value at a particular time is generally its cost less its decline in value up to that time.
The balancing adjustment amount is applied as follows:
- if the termination value of a depreciating asset is more than its adjustable value, the difference is included in your assessable income
- if the termination value is less than its adjustable value, the difference is an allowable deduction.
The balancing adjustment amount is applied in the year the balancing adjustment event occurs.
Special balancing adjustment calculations apply to luxury cars and to cars where different methods have been used to substantiate car expense deductions.