How to liquidate a fixed asset: six stages from the commission to closing account 9210

When a fixed asset is liquidated, the accountant steps in at the very end. Before that, an order is issued, a commission inspects the item, a certificate is drawn up and the head signs it. If one link of this chain drops out, even a correct entry on 9210 becomes a record with no document behind it. Below we follow the whole path from start to finish using one factory as the example.

When may a fixed asset be liquidated?

Paragraph 55 of NAS No. 5 lists five grounds for removing a fixed asset from the balance sheet because of liquidation:

1. When the set service life has ended, that is, when depreciation has been charged in full.
2. When it has become unusable: as a result of physical wear, an accident, a natural disaster or a breach of normal operating conditions.
3. When it is technologically obsolete. The standard defines such an item as a fixed asset that has lost value because more productive and more economical types performing the same function have appeared. In other words, the equipment still works, but running it does not pay off.
4. When it leaves the balance sheet by decision of the relevant state authorities.
5. When it leaves the balance sheet in connection with construction, expansion, reconstruction, modernization or technical re-equipment.

The last sentence of that paragraph matters: "Fixed assets that cannot be restored or whose restoration is economically unjustified must be liquidated" (NAS No. 5, paragraph 55). So this is not a right but a duty. Therefore "keeping" an unusable item on the balance sheet for years is contrary to the standard.

Note: liquidation is only one way of disposal. Paragraph 53 names eight more: sale, exchange, transfer free of charge, transfer to the charter capital as a founder's contribution, transfer under a finance lease (leasing) agreement, identification of a shortage or loss, a founder's withdrawal from the founders, and transfer as a property contribution when forming the property of a non-governmental non-profit organization. This article is about liquidation only.

Which stages does liquidation go through?

The order is not accidental: moving to stage 5 before stage 4 is prohibited. Under paragraph 57, the fixed asset may not be disassembled or dismantled until the certificate is approved.

Who sits on the commission and who approves the certificate?

Chair. The commission is headed by the head of the organization, a deputy or the chief engineer (paragraph 56).

Members. The standard names three categories as mandatory: industry specialists, an employee of the accounting department and the persons with material responsibility. In other words, the technician who knows the item, the accountant who keeps its records and the employee responsible for its safekeeping should sit at one table.

Membership, procedure and powers are set by an order of the head. That is why the first document is always the order.

Approval. The certificate drawn up by the commission is approved by the head of the organization. Paragraph 57 requires prior agreement in two cases: - if a unitary enterprise is liquidating immovable property it holds under the right of economic management, with the owner of the property; - if the state has a stake in the company, with its founder (participant).

An ordinary private LLC falls into neither category; there the head approves the certificate alone.

Which documents are prepared?

Under the last paragraph of paragraph 56, the documents for liquidation are set in the organization's accounting policy. Three forms are attached to the standard itself. We recommend the following set of five documents: three are the standard's forms, the order follows from the requirement of paragraph 56, and the goods received note is practical advice:

1. Order setting up a commission. The chair, members, procedure and powers are written here (paragraph 56). The date and number of the order are then carried into the certificate: the forms in Appendices 1 and 2 have a line "the commission appointed by order No. ...".

2. Fixed asset liquidation certificate (Appendix 1). The form is filled in with: - at the top, the "I approve" section: the head's full name, signature and date; - the certificate number and the name of the organization; - the structural unit, date of preparation, transaction type code, code of the person responsible for safekeeping; - the item table: name, type, code, cost, amount of accumulated depreciation, year of manufacture (construction), date put into service, inventory and manufacturer's number; - the date and number of the order appointing the commission, the name of the fixed asset inspected; - five points established by the commission: date received by the organization; weight according to the passport; table of usable parts, components, materials, non-ferrous and precious metals (number: serial, catalogue and stock number; name, unit of measure, quantity, value, amount); reason for write-off; technical condition; - the commission's conclusion, list of attached documents, position, signature and full name of the chair and members.

3. Vehicle liquidation certificate (Appendix 2). A separate form for vehicles. The difference from Appendix 1: the model, type, make, engine number, state registration plate number and the volume of work done or the distance travelled are recorded. It has one additional point: information on the vehicle being deregistered with the state road traffic safety service. In the table of usable parts this form has "Price" in place of the "Value" column.

4. Statement of liquidation costs and recovered materials (Appendix 3). A table in two parts: - on the left, liquidation costs: type of work, document number, cost item, amount; - on the right, materials fit for use: document number, name, code (stock number), quantity, price, amount. At the bottom there is a "Liquidation result" line and a note that the disposal has been marked in the fixed asset record card (book). The statement is signed by the chief accountant.

5. Document for receiving materials into stock (goods received note). NAS No. 5 gives no mandatory form for this document. Approve a form in the accounting policy (practical advice). It is convenient for the document to repeat exactly the names, quantities and prices from the Appendix 3 statement, and for the storekeeper to sign for receipt (practical advice).

Which journal entries are made in the books?

Paragraph 392 of NAS No. 21 clearly separates the two sides of account 9210: - on the debit, the initial cost of the item disposed of and the costs related to disposal; - on the credit, depreciation charged up to the time of disposal, materials received at the price of possible sale and use, the amount (balance) of revaluation results, and, on a sale, the proceeds.

Analytical accounting on 9210 is kept separately for each inventory item being disposed of (paragraph 392). Do not mix two machines in one "disposal".

About depreciation: depreciation stops from the date the item is written off the balance sheet (NAS No. 5, paragraph 34). So the amount on 0200 must be the depreciation charged up to exactly that date.

Example: the cannery's old steam boiler

The steam boiler in the boiler room of "Bog'iston Konserva" LLC cracked and became unusable. Fitting a new part would cost more than the boiler's carrying amount, so restoring it is economically unjustified. All amounts are hypothetical, and there is no VAT in the example (the contractor is assumed not to be a VAT payer).

Step 1. The director issued an order: chair, the chief engineer; members, the boiler room manager (the person with material responsibility), a heating engineer and an accountant.

Steps 2–3. The commission inspected the boiler, checked the weight and year against the passport and drew up a certificate on the Appendix 1 form: the reason is that it became unusable (the second ground in paragraph 55); usable parts: two pumps and four valves.

Step 4. The director approved the certificate. The factory is private, so no agreement with anyone was required.

Step 5. The contractor cut up the boiler and removed it; two of the company's own workers sorted and weighed the metal. The Appendix 3 statement was filled in.

Social insurance contributions on wages are also recorded on the debit of 9210 (paragraph 394, line 10), but they are left out of the example to keep the calculation simple.

Step 6. Journal entries:

T-account for 9210:

Let us check the result with the formula in paragraph 58 of NAS No. 5: income from disposal (materials taken into stock) is 9 530 000 soum, from which the carrying amount of 14 500 000, the indirect taxes related to disposal (none in the example) and the disposal costs of 8 000 000 soum are deducted: 9 530 000 − 14 500 000 − 8 000 000 = −12 970 000 soum. Both methods gave the same answer.

If the materials taken into stock exceed the sum of the carrying amount and the costs, a credit balance arises on 9210, and it is closed as a gain with Dt 9210 – Ct 9310.

What changes if a revalued item is liquidated?

Under the second paragraph of paragraph 58, if the item was revalued earlier, the part of the revaluation increases that exceeds the decreases is included in income from disposal, and at the same time the reserve capital on 8510 "Adjustments from revaluation of long-term assets" is reduced. Entry: Dt 8510 – Ct 9210 (NAS No. 21, paragraph 394, line 7).

If in our example such an excess increase for the boiler had been 3 000 000 soum, the credit of 9210 would have grown by 3 000 000 soum and the loss would have fallen from 12 970 000 to 9 970 000 soum.

What if only part of an item is liquidated?

Under paragraph 54 of NAS No. 5, on partial liquidation both the cost of the item and its accumulated depreciation are reduced by the cost and depreciation of the liquidated part. The item stays on the balance sheet; it just "shrinks".

Example: the same factory's cold store (0120) consists of three chambers, and one chamber is demolished in connection with reconstruction (the fifth ground in paragraph 55). The cost of the store is 240 000 000 and its depreciation 96 000 000 soum. The commission determined the cost of the part being demolished at 80 000 000 and its depreciation at 32 000 000 soum.

The entries are the same as for full liquidation, only for the amount of the part: Dt 9210 – Ct 0120 80 000 000; Dt 0220 – Ct 9210 32 000 000. Materials from the demolition and demolition costs also pass through 9210. The standard does not say how to determine the cost of the part, so set the method in the accounting policy (practical advice).

Common mistakes

• Cutting before approval. The workshop cuts up the boiler, deciding it is "useless anyway", and the certificate is written afterwards. This directly contradicts paragraph 57.
• No accountant or person with material responsibility on the commission. Paragraph 56 requires all three categories.
• Bypassing 9210. "Dumping" the carrying amount in a single line Dt 9430 – Ct 0130. As a result, initial cost and depreciation are not shown separately, and materials and costs are left out of the result.
• Not taking scrap metal into stock. Under paragraph 392, materials received at the price of possible use are recorded on the credit of 9210. Metal not taken into stock becomes an asset outside the books.
• Charging dismantling costs straight to period expenses. Costs related to disposal are collected on the debit of 9210 (paragraph 392) and reach the result through it.
• Charging depreciation even after the write-off. Under paragraph 34, charging stops from the date of write-off.
• Forgetting the revaluation balance. If an amount for this item remains on 8510, the result will be wrong (paragraph 58).
• Using the Appendix 1 form for a vehicle. The Appendix 2 form is intended for vehicles.

Practical advice

• Give the commission a deadline in the order: by when it will inspect the item and hand in the certificate (practical advice).
• Before the inspection, open the fixed asset's inventory card: the initial cost, depreciation and date put into service must match the figures in the certificate table (practical advice).
• Describe the technical condition not with the single word "unusable" but specifically: what is broken and why restoring it does not pay. This shows which ground in paragraph 55 was applied (practical advice).
• Weigh the scrap metal on scales and attach the weighing result to the certificate (practical advice).
• Set once in the accounting policy how the price of usable parts and materials is determined, so you do not argue about it again each time (practical advice).
• Check 9210 at the end of the month: if the liquidation is complete, no balance should remain on the account (practical advice).

Download the document templates

The blank templates below were prepared by the author and are meant to be filled in; templates 2–4 are based on the forms in the appendices to NAS No. 5. You download the DOCX files (in Uzbek) from the "See also" list at the end of the page:

1. Order setting up a commission (DOCX) — for the chair, members, procedure and powers.
2. Fixed asset liquidation certificate (DOCX) — based on Appendix 1 to NAS No. 5.
3. Vehicle liquidation certificate (DOCX) — based on Appendix 2 to NAS No. 5.
4. Statement of liquidation costs and recovered materials (DOCX) — based on Appendix 3 to NAS No. 5.
5. Goods received note for materials (DOCX) — the standard has no mandatory form; the template is approved in the accounting policy.

When a fixed asset is not liquidated but disposed of by sale, other documents are needed: a sale and purchase agreement and a handover certificate. Their templates (DOCX, prepared by the author, to fill in) are also in the "See also" list. A sold item is also written off the balance sheet (NAS No. 5, paragraph 53), and depreciation stops from the date of write-off (paragraph 34).