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Machine inventory
Posted by Anonymous on 05/07/2009 - 12:36
My company has a machine that has been a rental unit for the past two to three years. The client is getting a new machine soon and we will receive the old one back from them at that point. We have lined up a buyer for the machine and the value of the machine will be approximately $1500 ($3385 cost less $1885 depreciation).
My question is this, how do I enter the nachine into inventory so that we can sell it? does it need to be entered into inventory or can we sell it and show the gain/loss on the sale on our 4797 when tax time rolls around again?
konor
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Machine inventory
I agree with Laura for the most part, but it not quite that simple.
Since you already have a sale lined up, it is acceptable for tax purposes to by-pass inventory. If you are primarily in the business of selling used machines that you take back in (but I supsect your are primarily an equipment rental company) AND you issue GAAP financial statements, you will need to move the machine to inventory.
To move the machine to inventory, you would need to debit accumulated depreciation and credit fixed assets. The inventory debit amount would be dependent on your inventory valuation method.
For example, if the NET of the two entries above is $1500, and you know you are selling the machine for $1200, if your method of valuing inventory is "Lower of Cost or Market" then your inventory value would be $1200 and you would record an unrealized loss (until ultimate disposal) of $300.
Utlimately the $300 loss will go on Form 4797 and sales and inventory will net to zero, so you may find it just as easy to totally bypass sales and inventory in these situations.
Please feel free to contact me at clh@christinahansencpa.com if you have any additional questions.
Machine inventory
If your business is in the business of regularly selling machines, you would need to enter it into inventory and then sell it as you would any other.
If you don't regularly sell machines, this machine should already be listed with your depreciable assets, and you would sell it as you would any other asset and, yes, it would be on the 4797.