Transfer of Asset

by Lori
(Vancouve, B. C.)

Non-arm's Length Transaction

Non-arm's Length Transaction

Locking my head around this, but cannot make it work.

Transfer of vehicle to shareholder. I credit vehicle and debit cca, credit GST Payable, but what with the rest of the entry. The vehicle is on the books for $47,043.00 and accumulated amortization of $12,150.00. The transfer was set at $17,000.00 plus GST. It is a 10.1 so recapture and terminal loss do not apply.

CR Vehicle 47,043.00

DR Accum Amort 12,150.00

CR GST Payable 850.00

DR Loss on Trans of Asset 35,743.00

If someone can help me would appreciate it. I need to get the books to the accountant by month end and would like to have all the bookkeeping in order for him. Is the above entry correct?

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Hi Lori,

If this were me, I'd take a deep breath, exhale slowly then book the event as two separate entries. First I'd remove the asset from the books, then I'd record the transfer of the asset to the shareholder. Failing that, your other option is to leave the entry for the accountant to book. You will definitely want to bring this transaction to the accountant's attention either way.

Your accountant may want to book amortization up to the end of the month of your sale/transfer which would mean booking that entry prior to booking the removal of the asset from the books.

Entry to remove the asset from the books:

DEBIT Gain (Loss) on Transfer of Asset $34,893
DEBIT Accumulated Amortization $12,150
CREDIT Vehicle 10.1 class $47,043

Entry to record sale of asset to shareholder:

DEBIT Cash in Bank or Accounts Receivable $17,850
CREDIT GST Payable $850
CREDIT Gain (Loss) on Transfer of Asset $17,000

It would be prudent to have on file something that can back up the non-arm's length valuation of the vehicle. It should be transferred at the fair market value (FVM). The best support document would be a third party appraisal.

This transaction should not run through the shareholder's loan account as a journal entry. It should be a physical transaction where money exchanges hands such as cash or a cheque to deposit or a transfer of funds from the shareholder bank account to the corporation bank account.

Because it is a non-arm's length transaction, you may want to run it by the accountant prior to booking to ensure it is handled properly.

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