During the operation process, enterprises cannot avoid having to handle fixed assets that are no longer of use or are no longer suitable for current production and business activities. However, if not done properly, fixed asset liquidation process, businesses may encounter problems related to accounting, tax and auditing. In this article, Bizzi will guide in detail the process of liquidating fixed assets, helping businesses ensure compliance with legal regulations, while optimizing asset management efficiency.
1. What is liquidation of fixed assets? Why do businesses need to do it?
Liquidation of fixed assets is an important part of the enterprise's asset management process. In particular, the fixed asset liquidation process helps enterprises optimize costs and assets during operations. Let's learn about this process and why enterprises need to perform it.
1.1. Definition of liquidation of fixed assets
Liquidation of fixed assets is the process of terminating the ownership and use of fixed assets of an enterprise through forms such as sale, destruction or conversion of purpose of use. This is an important operation when the asset is no longer of use value, fully depreciated, damaged or no longer suitable for the production and business requirements of the enterprise. The process of liquidation of fixed assets not only helps to minimize unnecessary costs but also supports the enterprise to free up resources for new investments.
Liquidation of fixed assets can take place in many different situations, such as when equipment has fully depreciated, is no longer of use, or when there is a need to replace it with more modern equipment and machinery to improve production efficiency.
1.2. The importance of liquidation of fixed assets for cost management
Below are some effective asset management steps that help improve capital efficiency and reduce unnecessary cost pressures.
Optimizing financial resources: The process of liquidating fixed assets helps businesses recover capital from assets that are no longer of use, from which they can reinvest in other items or supplement working capital to develop business operations. This not only helps improve cash flow but also helps businesses manage costs more effectively.
Reduce maintenance and storage costs: One of the important reasons for liquidating fixed assets is to reduce the cost of maintaining and storing old assets. When assets are no longer operating effectively or are damaged, maintaining and maintaining them will create unnecessary cost burdens, affecting the budget and profits of the business.
Legal and tax compliance: Liquidation of fixed assets also helps businesses comply with legal and tax regulations. If businesses do not properly implement the fixed asset liquidation process, the asset write-off may not be in accordance with regulations, causing risks in auditing and increasing the possibility of tax penalties. Therefore, the fixed asset liquidation process must be fully and properly implemented to avoid these risks.
Update and modernize facilities: Liquidation of fixed assets helps businesses create conditions to invest in new assets, thereby improving operational efficiency. Especially in a rapidly changing business environment, updating and modernizing facilities will help businesses maintain competitiveness and better respond to market needs.
2. Cases requiring liquidation of fixed assets according to regulations
In the process of liquidating fixed assets (FA), enterprises need to comply with legal regulations and requirements from circulars of the Ministry of Finance. Understanding the cases of FFA liquidation helps enterprises to follow the correct steps, ensure compliance with regulations and optimize financial efficiency.
2.1. Pursuant to Circular [Circular Number] of the Ministry of Finance
According to current regulations, including Circular 200/2014/TT-BTC and Circular 133/2016/TT-BTC, the liquidation of fixed assets must be carried out when there are reasonable and legitimate reasons. These circulars provide detailed regulations on the liquidation of fixed assets, in order to ensure transparency and legality in the handling of assets that are no longer suitable for the business's operations. Enterprises need to base on these circulars to determine the time and reasonable reasons for liquidating assets.
2.2. Specific cases requiring liquidation of fixed assets
Below are cases where businesses need to liquidate fixed assets according to regulations:
- Fixed assets damaged and cannot be used again: This is the case where the fixed asset is completely damaged, cannot be repaired or the repair is not economically effective. In this case, the enterprise needs to liquidate the asset to avoid waste.
- Technically obsolete fixed assetsFixed assets that no longer meet modern technological requirements or are no longer effective in production and business due to reduced productivity must be liquidated so that the business can replace them with new, more suitable equipment.
- Fixed assets not suitable for production and business requirements: When fixed assets no longer meet the business strategy or goals of the enterprise, liquidation is necessary to optimize resources and reduce maintenance costs.
- Fixed assets have been fully depreciated.: When fixed assets have reached the end of their useful life and have been fully depreciated, no longer contributing to production value, liquidation is a necessary step in the asset management process.
- Business dissolution, merger, sale: When a business dissolves, merges or sells, assets that are no longer needed will be liquidated to complete financial and legal procedures.
- Assets recovered under state regulations: Some assets may be repossessed at the request of the state due to violations of the law or danger to the community. In this case, the enterprise must liquidate the assets according to the provisions of the law.
3. Detailed fixed asset liquidation process in 5 steps
The fixed asset liquidation process is an important part of a business's asset management. Properly implementing the liquidation steps not only helps businesses comply with the law but also helps optimize asset value. Below is a detailed 5-step fixed asset liquidation process, from making a liquidation request to summarizing the liquidation results.
3.1. Step 1: Prepare a proposal for liquidation of fixed assets
The first step in the fixed asset liquidation process is to prepare a Fixed Asset Liquidation Application. The asset management department will determine the assets to be liquidated based on the results of the inventory and asset monitoring. The list of fixed assets (TSCD) to be liquidated must be clearly stated in the application to ensure transparency and accuracy in the process.
3.2. Step 2: Decide to liquidate fixed assets
After the liquidation application is made, the head of the unit will approve and issue a Decision on Liquidation of Fixed Assets. At the same time, the decision will be made to establish a Fixed Asset Liquidation Council (TSCD), the agency responsible for carrying out the work in the next step of the liquidation process.
3.3. Step 3: Establish a Fixed Asset Liquidation Council
The fixed asset liquidation council will be established, including members such as the Head of the unit (Chairman), Chief Accountant, Asset Accountant, Head (or Deputy) of the facilities department, representative of the asset management unit, technical staff, and sometimes a representative of the organization (if necessary). The main task of the Council is to inspect and re-evaluate assets, ensuring that liquidation is carried out in accordance with the approved process.
3.4. Step 4: Proceed with liquidation of fixed assets
In this step, the Council will re-evaluate the quality and remaining value of the fixed assets. Minutes of the meeting of the Fixed Asset Liquidation Council will be prepared to record the results of the evaluation and decide on the form of asset disposal (sale or destruction). Minutes of asset inventory and asset evaluation will also be prepared to confirm the quantity and condition of the assets. The final decision on the form of asset disposal will be submitted to the head of the enterprise for approval. If necessary, a valuation organization can be hired to ensure that the sale of assets is carried out at the correct market value.
3.5. Step 5: Synthesize and process liquidation results
After liquidating the assets, the Council will prepare a Fixed Asset Liquidation Record. The accounting department will record the assets and their value in the accounting books. In particular, for fixed assets that are large infrastructures invested by the state, the consent of the owner agency is required before recording the reduction of business capital. Finally, documents related to the liquidation of assets such as the Economic Contract for the sale of Fixed Assets, Invoice for the sale of Fixed Assets, Minutes of the handover of Fixed Assets, Minutes of the destruction of Fixed Assets, and Contract Liquidation (if any) must be fully prepared and stored.
4. Legal documents to be prepared for the liquidation process of fixed assets
The fixed asset (FA) liquidation process is an important part of a company's financial management. To ensure that the liquidation process is carried out in accordance with regulations, legal documents must be complete and accurate. Below are the steps and documents that need to be prepared at each stage of the fixed asset liquidation process.
4.1. Liquidation proposal stage
In the first stage of the fixed asset liquidation process, the business needs to prepare a Application for liquidation of fixed assets. This is the first document expressing the enterprise's wishes to liquidate fixed assets, notify the authorities and relevant parties. This request must include detailed information about the assets to be liquidated, the reason for liquidation and related information.
4.2. Liquidation decision stage
After the liquidation proposal, the enterprise needs to prepare official decision documents. Important documents at this stage include:
- Decision on Liquidation of Fixed Assets: This is the official decision of the enterprise on liquidation of fixed assets. This decision must be made in writing and signed by an authorized person in the company.
- Decision to establish a fixed asset liquidation council: A liquidation board will be established to oversee and carry out the liquidation process. This decision identifies the board members and assigns responsibilities to each person.
4.3. Liquidation stage
This stage is when the business takes the actual steps to liquidate the fixed assets. Important legal documents required at this stage include:
- Minutes of meeting of liquidation council of fixed assets: These minutes record the contents of the liquidation board meeting, including decisions related to the liquidation of assets.
- Fixed asset inventory record: This is a record of the current status of the fixed asset, helping to determine whether the asset is intact or has been worn out or damaged.
- Fixed Asset Revaluation Minutes: If a fixed asset needs to be revalued before disposal, this record will record the valuation results, helping to determine the asset value at the time of disposal.
- Minutes of liquidation of fixed assets (2 copies): This record confirms that the asset has been liquidated, including information about the sale or destruction of the asset. Two copies should be made, one to be kept at the enterprise and one to be sent to the competent authority.
- Economic contract for sale of fixed assets (if sold): If the asset is sold instead of destroyed, the enterprise needs to sign an economic contract with the buyer, which clearly stipulates the transaction conditions.
- Fixed asset sale invoice (if sold): After selling assets, businesses need to issue an asset sale invoice according to the provisions of law.
- Fixed asset delivery and receipt minutes (if sold): This is a document that records the transfer of assets from the business to the buyer, including details about the asset and its condition.
- Minutes of fixed asset destruction (if destroyed): If the property is destroyed, this record will confirm that the property has been destroyed and is no longer of any use.
- Contract liquidation (if any): In case the fixed asset has an attached contract (for example, a lease contract), the enterprise needs to liquidate the contract and record it in the liquidation minutes.
- Minutes of fixed asset reduction: After liquidation, this record records the decrease in value of fixed assets in the accounting books.
- Legal documents attached: These documents may include proof of ownership of fixed assets (certificate of ownership, license, sales contract, etc.) to demonstrate the legality of the assets to be liquidated.
5. Legal regulations on liquidation of fixed assets
The process of liquidating fixed assets (TSCD) is an important part of corporate financial management, helping to ensure that liquidation activities comply with legal regulations. Below are the main regulations related to liquidation of fixed assets that businesses need to understand.
5.1. Regulations on fixed assets at enterprises
According to Circular 45/2013/TT-BTC, fixed assets are determined based on a number of important criteria, including asset value, usage time and profitability from that asset. Assets with large value and usage time of 1 year or more will be considered fixed assets.
When liquidating fixed assets, businesses must record a reduction in fixed assets in their accounting books. This helps businesses calculate and re-determine the value of assets during the liquidation process. This process must be performed accurately and in full compliance with accounting requirements to ensure legality and transparency.
5.2. Tax regulations when liquidating fixed assets
When liquidating fixed assets, businesses need to pay attention to tax declaration. Specifically:
- Value Added Tax (VAT): Enterprises must declare and calculate VAT on income from the sale of taxable fixed assets. This is one of the important procedures in the process of liquidating fixed assets.
- Corporate income tax (CIT): Enterprises must calculate corporate income tax on income arising from the liquidation of fixed assets. This must comply with the provisions in Tax Administration Law 38/2019/QH14, to ensure that businesses do not violate tax regulations when liquidating assets.
5.3. Regulations on auction of liquidated assets (if any)
When the assets to be liquidated are of great value or are state-owned, the enterprise may have to comply with regulations on property auction. According to Law on Property Auction 2016The liquidation of these assets must be carried out through public auctions, ensuring transparency and fairness in the valuation and sale of assets.
5.4. Regulations on environmental protection
In case fixed assets affect the environment, enterprises need to comply with environmental protection regulations. According to Environmental Protection Law 2020, if the liquidated assets have a negative impact on the environment (for example, polluting equipment), the enterprise must take prescribed treatment measures before liquidation.
6. Accounting for fixed asset liquidation transactions
The process of liquidating fixed assets (TSCD) is an important part of the asset management of a business. When assets are no longer valuable or no longer suitable for production needs, liquidation is a necessary step to optimize financial resources and assets. In this article, we will explain in detail the accounting steps in the process of liquidating fixed assets, from writing down the value to determining profits and losses.
Record the original cost and accumulated depreciation of fixed assets
The process of disposing of a fixed asset begins by writing down the asset's original cost and accumulated depreciation. This means that you need to reduce the balance of the fixed asset on your accounting books by the remaining value of the asset after deducting the accumulated depreciation over its useful life.
Record proceeds from liquidation (if any)
Next, in the process of liquidating fixed assets, if the enterprise receives money from liquidating assets, the accountant needs to record this money in the accounting system. This can be the amount of money received from selling assets, or from compensation related to liquidated assets.
Record costs related to liquidation
In addition to revenues, expenses incurred during the liquidation process should also be recorded. These expenses may include the costs of dismantling, transporting, destroying assets, or costs related to legal procedures to liquidate assets. Fully recording these expenses helps ensure accuracy in accounting and accurately reflects the financial situation of the enterprise.
Determine profit or loss from liquidation of fixed assets
An important step in the process of liquidating fixed assets is to determine the gain or loss from the liquidation of the asset. This gain or loss is calculated by comparing the value obtained from the liquidation with the remaining value of the asset (after deducting accumulated depreciation). The result of this process will be recorded as other income or expenses of the business.
Learn more about how to account for liquidation of fixed assets that have been and have not been fully depreciated.
Accounting for disposal of fixed assets will vary depending on the depreciation status of the asset. For fully depreciated assets, the accounting will be simpler, while for partially depreciated assets, you will need to process the undepreciated portions and accurately calculate the remaining asset value to properly record the profit/loss from disposal.
7. Important notes when liquidating fixed assets to optimize costs
Liquidation of fixed assets is an important part of optimizing business costs. To effectively carry out the fixed asset liquidation process, businesses need to note the following points:
- Correctly identify the cause and purpose of liquidation: Clearly defining the reason and purpose of liquidation will help you choose the appropriate liquidation plan and avoid affecting business operations.
- Ensure complete and accurate legal documents: Legal documents must be complete and valid to avoid legal risks during the liquidation process.
- Follow proper procedures to avoid errors and legal risks: Following the correct liquidation process helps ensure accuracy and avoid errors, protecting the business from legal risks.
- Carefully evaluate the value of assets before liquidation (especially when selling): Properly valuing assets helps optimize costs and benefits when liquidating, especially when selling assets.
- Choose the appropriate liquidation method (sale, cancellation, conversion): Choose the liquidation method that suits your asset status and business goals.
- Accurate and complete accounting records: Fully recorded in accounting books helps businesses monitor and control costs effectively.
- Keep liquidation records carefully: Keeping complete and accurate records of liquidation is essential to avoid legal problems later.
- KDeclare and fully perform tax obligations: Ensure full declaration and fulfillment of tax obligations when liquidating assets to avoid penalties and legal risks.
8. Solutions to support effective asset management and liquidation processes
The process of liquidating fixed assets is an important step in managing a business's assets. To optimize this process, using modern asset management software can bring many great benefits, helping businesses not only save time but also increase accuracy and legal compliance in the process of liquidating assets.
Effective asset management software
One of the popular solutions for managing assets and the process of liquidating fixed assets is the use of asset management software. These software are designed to help businesses track and manage assets easily and efficiently, from tracking the asset lifecycle to liquidation operations.
- Asset Life Cycle Tracking: These software provide detailed tracking of the status of each asset, from purchase to disposal. This helps businesses closely control assets, thereby making accurate disposal decisions.
- Asset status management: Asset management becomes simpler with features that help businesses assess the level of damage, depreciation and remaining value of assets, thereby determining the appropriate time and method of liquidation.
- Automate accounting operations related to liquidation: The software automates accounting operations related to asset liquidation, helping to minimize errors and save time. Recording and processing liquidation transactions is done quickly and accurately.
- Centralized record keeping: These software allow businesses to store asset records and liquidation-related transactions in one place, making them easy to search and secure.
Conclude
Proper implementation of the fixed asset liquidation process not only helps businesses manage costs effectively but also ensures full compliance with legal regulations. The standard liquidation process helps accurately determine the remaining value of assets, thereby minimizing financial risks and optimizing profits.
In addition, the application of support tools such as Bizzi – the first electronic invoice processing automation platform in Vietnam – will help businesses automate steps in the accounting process, from receiving, checking, reconciling to accounting for invoices.
Bizzi uses artificial intelligence (AI) and robotic process automation (RPA) technology to process invoices quickly, extracting data in less than 30 seconds, reducing invoice processing time by up to 80% and processing costs by up to 50%. The platform also flexibly integrates with popular ERP systems such as SAP, Oracle NetSuite, Microsoft Dynamics 365, Odoo and other accounting software, allowing businesses to maintain their current workflow without changing systems.
Therefore, businesses should apply standard processes and use modern support tools such as Bizzi to optimize work efficiency and achieve the best results in asset and cost management.
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