Trade-in of a fully depreciated asset

thumpersmom

I recently purchased anew machine for my small business. I am unsure how to record the purchase correctly. The new machine was $50K but I received a trade-in for my old machine of $14K. The old machine was fully depreciated. How do I record this so the new machine (asset) still has a value of $50K? I believe the trade-in will have to show as income for the current.

Tom Young

"I believe the trade-in will have to show as income for the current. "

That is correct.  You have a $14K gain on the old machine.  That gain, plus the money or obligations you added to it in cash, via a loan, or a combination of the two, comes to the $50K needed to buy the new machine.

Mechanically, there's various ways of making the accounting entries needed.  Unfortunately I don't use the Quicken Home and Business product so I don't know if Quicken has built in a "wizard" that handles equipment sales or not.  But, if I had been tracking a piece of equipment in the Premier version by establishing an "Equipment" asset Account and by recording depreciation within that same Account (an Account that now has a balance of $0), here's one way of doing this;

1. Create a new Equipment asset Account - suitably named - with an opening balance of $0.
   
2. Make a "deposit" of $14K in the checking Account, with the offset to a Category (one that I'd have to create) of "Gain on Equipment Sale." Put a "c" in the Clr column.
   
3. Make a "payment" out of the checking Account of $14K with a "Category" that's the name of the new equipment Account, surrounded by square brackets.  (A "transfer" in Quicken-speak.)  Put a "c" in the Clr column.  (The two $14K entries offset, leaving the checking Account balance unchanged and the "c"s will be changed to "R"s with the next reconciliation.)
4. Make another payment - a real one presumably - out of checking for the cash you've pulled out of pocket, with a "Category" that's the name of the new equipment Account, surrounded by square brackets.
5. If a loan is involved, create the loan using the Quicken loan "wizard."  After the loan is created go into the new loan's register and change that Opening Balance by editing the "Category" used in that transaction, (a "self-referential" transaction whereby the Category is the name of the new loan Account), to the name of the new equipment Account, surrounded by square brackets. (Another "transfer.")
   
6. Close and hide the old equipment Account.

The sum of the entries to the new equipment Account - the $14K, the money you pulled out of pocket, the new loan, if used - will total the $50K of the new equipment.

Tom Young

"I believe the trade-in will have to show as income for the current. "

That is correct.  You have a $14K gain on the old machine.  That gain, plus the money or obligations you added to it in cash, via a loan, or a combination of the two, comes to the $50K needed to buy the new machine.

Mechanically, there's various ways of making the accounting entries needed.  Unfortunately I don't use the Quicken Home and Business product so I don't know if Quicken has built in a "wizard" that handles equipment sales or not.  But, if I had been tracking a piece of equipment in the Premier version by establishing an "Equipment" asset Account and by recording depreciation within that same Account (an Account that now has a balance of $0), here's one way of doing this;

1. Create a new Equipment asset Account - suitably named - with an opening balance of $0.
   
2. Make a "deposit" of $14K in the checking Account, with the offset to a Category (one that I'd have to create) of "Gain on Equipment Sale." Put a "c" in the Clr column.
   
3. Make a "payment" out of the checking Account of $14K with a "Category" that's the name of the new equipment Account, surrounded by square brackets.  (A "transfer" in Quicken-speak.)  Put a "c" in the Clr column.  (The two $14K entries offset, leaving the checking Account balance unchanged and the "c"s will be changed to "R"s with the next reconciliation.)
4. Make another payment - a real one presumably - out of checking for the cash you've pulled out of pocket, with a "Category" that's the name of the new equipment Account, surrounded by square brackets.
5. If a loan is involved, create the loan using the Quicken loan "wizard."  After the loan is created go into the new loan's register and change that Opening Balance by editing the "Category" used in that transaction, (a "self-referential" transaction whereby the Category is the name of the new loan Account), to the name of the new equipment Account, surrounded by square brackets. (Another "transfer.")
   
6. Close and hide the old equipment Account.

The sum of the entries to the new equipment Account - the $14K, the money you pulled out of pocket, the new loan, if used - will total the $50K of the new equipment.