Introduction
Natural and moral persons, to carry out their business activities, require the use of certain assets. For example, in a factory, an important item is that comprised by machinery; in an office, the computer equipment; in an importer, the storage warehouse, etc.
Assets in businesses, the purpose of which is to use them, and not dispose of them, are called "fixed assets". Also in the area of finance we find definitions for fixed assets such as investments or working capital. One of the main characteristics of these assets is that they are permanent in the company, that is, they will be there, generating profits until such assets cease to be useful over time (when they run out of depreciation), or, until the companies decide to dispose of them in order to acquire new fixed assets, that is, they decide to sell them to obtain liquidity in certain circumstances.
The fixed assets that are used within companies are demerited by the use made of them and by the passage of time. This loss of value of the goods is known as "depreciation", in accounting matters, such depreciation must be recognized as an expense, and in tax matters as an authorized deduction (investment deduction). Regardless of the accounting or tax approach that is given to the loss of value of the goods, it is very important to consider such depreciation or deduction, since selling a fixed asset, considering the value of the purchase (original amount of the investment) less the demerit suffered in a period of time (depreciation), will give us an approximate current value, of what the good in question is supposed to cost from when it was acquired and until it is disposed of.
It is important to highlight that in the case of land, contrary to what happens with other fixed assets, over time, instead of losing a part of its value through use, said assets increase it. This excess value of land is called, in the real estate environment, as capital gain.
In terms of the provisions of section V of article 20 (legal entities) and section XI of article 121 (natural persons, businessmen and professionals) of the Income Tax Law (LISR), the tax profit resulting from the sale of assets Fixed is an accumulative income and, as a consequence, it must be declared in the provisional payment of the sale period and in the annual declaration.
Thus, in this article we will analyze the accounting and tax procedures that we must consider when companies dispose of fixed assets, since the correct accounting record will depend on having reliable financial information that allows us to make decisions and, in tax matters, comply with adherence to the laws the correct payment of our taxes.
Sale of Land >>
As previously stated, the land, over time, instead of losing its value, increases it and, as a consequence, are not assets subject to depreciation.
With the following data we will calculate the accounting and tax profit (loss) that results in a land sale operation:
Note: The procedure to be followed in the sale of land with respect to income tax (ISR) is contained in article 21 of the LISR.
The company ABC, SA, shows us the following information so that the accounting and tax profit (loss) in the sale of one of its land can be determined.
Concept Amounts
MOI $ 1,200,000
Date of acquisition of the property: October 15, 1995
Sale Date of Property: November 18, 2001
Sale price of the property $ 3'750,000
Determination of profit (loss)
accountant in the sale of the land:
Sale price $ 3'750,000
(-) MOI $ 1,200,000
(=) Accounting profit (loss) $ 2,550,000
Comment: As can be seen, an inflationary effect (restatement) is not considered within the historical value of the land, which results in a high accounting profit in the sale. It is extremely important to mention that in the financial information of companies, the restatement of financial statements is necessary in accordance with the provisions of Bulletin B-10 of the Mexican Institute of Public Accountants, by virtue of the fact that in order to comply with the Principles of Generally Accepted Accounting, when registering the operations of the entities we must register them at cost price, or rather at «Original Historical Value». Thus, returning to our example, it can be seen that the operation of the sale of the land yields a very high accounting profit, which may seem unreal, and therefore,In our opinion, for the financial information to reflect figures that are as close to reality as possible, we must re-express the accounting figures. As a personal opinion, it is important to point out that in a country like Mexico, where there have been quite significant inflationary effects, it is of great importance to consider, in what is conducive, the restatement of the financial statements of the companies, since the inflationary effects distort financial information significantly. To record the sale of the asset in the accounting, we run the following entry in our accounting books, considering that the sale of the previous asset was agreed on credit.It is important to note that in a country like Mexico, where there have been quite significant inflationary effects, it is of great importance to consider, where appropriate, the restatement of the companies' financial statements, since the inflationary effects significantly distort the financial information. To record the sale of the asset in the accounting, we run the following entry in our accounting books, considering that the sale of the previous asset was agreed on credit.It is important to note that in a country like Mexico, where there have been quite significant inflationary effects, it is of great importance to consider, where appropriate, the restatement of the companies' financial statements, since the inflationary effects significantly distort the financial information. To record the sale of the asset in the accounting, we run the following entry in our accounting books, considering that the sale of the previous asset was agreed on credit.To record the sale of the asset in the accounting, we run the following entry in our accounting books, considering that the sale of the previous asset was agreed on credit.To record the sale of the asset in the accounting, we run the following entry in our accounting books, considering that the sale of the previous asset was agreed on credit.
Account Name Must Have
Sundry debtors 3'750,000
Land 1'200,000
Other income 2,550,000
Equal Sums 3'750,000 3'750,000
The reasoning of the previous example is that we record the sale price of the good that is pending collection (various debtors), and we must derecognise the asset in our accounting books, since when selling the land it is "passing" Ownership of the asset to the buyer of the asset, we must consider the profit on the sale, in the account of other income, assuming that the sale of fixed assets does not constitute the main activity of the company. (Remember that in terms of the provisions of section I of article 9 of the Law on Value Added Tax, the sale of land is exempt from said tax.)
Determination of the tax profit (loss) on the sale of the land
For tax purposes, we must point out that article 21 of the LISR determines the procedure to be followed in the sale of land among other assets. A point that is important to highlight is that article 21 in question, literally states that:
Article 21. To determine the gain from the sale of land, of securities that represent the ownership of property, except in the case of the property referred to in the first paragraph of section II of article 29 of this Law, as well as other Securities whose returns are not considered interests under the terms of article 9. of the same, of pieces of gold or silver that would have had the character of national or foreign currency and of the pieces called troy ounces, the taxpayers will subtract from the income obtained by their sale the original amount of the investment, which can be adjusted multiplying it by the update factor corresponding to the period from the month in which the acquisition was made and up to the month immediately prior to that in which the sale was made.
As we appreciate from the previous text, the LISR provides that the MOI may be updated. The term used is an option that is given to the taxpayer, but, as we will see later, if the cost of the land subject to alienation is not updated, the resulting tax profit would be equal to the accounting profit, generating a significant profit in terms of income. accumulative is concerned.
Firstly, we must update the cost of the land with the update factor that results from dividing the National Consumer Price Index (INPC) of the month prior to the date of sale by that corresponding to the month of acquisition, which in our example is with the Indices for the months of October 2001 and April 1995. (For practical purposes, the dates are taken up to December 31, 2001 so that it is possible to have all the indices.)
MOI $ 1,200,000
(´) Update factor 2.7379
(=) MOI updated 3'285,480
Sale price 3'750,000
(-) MOI updated 3'285,480
(=) Tax profit (loss) 464,520
As we observed, a tax profit of $ 464,520 was obtained in the sale of the land.
An important point to highlight is that although it is true, the tax amounts are not reflected in the company's accounting books, it is also true that these amounts can be recorded in memorandum accounts and there will be more effective control of tax items. In practice, the recording in memorandum accounts of tax operations is not very common, but it is highly recommended, since when preparing tax returns, by means of tax records assistants, we will have on hand the tax amounts that are not they are countable and must be declared. The entry in memorandum accounts would be as follows:
Account Name Must Have
Cumulative profit on land sales 464,520
Tax profit on land sales 464,520
Equal Sums 464,520 464,520
Disposal of fixed assets
(office equipment, transportation, etc.)
When disposing of fixed assets that depreciate due to their use and over time, we must calculate their book value. The book value of the assets is the MOI minus the accumulated depreciation that said asset has on the day of the sale. In accounting matters, the determination of the profit or loss on sale of fixed assets is relatively easy to calculate, but in tax matters, according to article 37 (sixth, seventh and eighth paragraphs) of the LISR, the following is observed:
Article 37………………………………………
When the taxpayer disposes of the assets or when they cease to be useful for obtaining the income, he shall deduct, in the year in which this occurs, the part not yet deducted. In the event that the assets cease to be useful for obtaining income, the taxpayer must keep a weight in his records without deduction. The provisions of this paragraph are not applicable to the cases indicated in article 27 of this Law.
Taxpayers will adjust the deduction determined in the terms of the first and sixth paragraphs of this article, multiplying it by the update factor corresponding to the period from the month in which the asset was purchased and until the last month of the first half of the period in which the good was used during the year for which the deduction is made.
When the number of months included in the period in which the property has been used in the financial year is odd, the month immediately preceding the one corresponding to half of the period shall be considered as the last month of the first half of said period.
Let's analyze the following example:
The company XYZ, SA, presents us with the following information so that the accounting and tax profit (loss) in the disposal of the following fixed assets is determined:
Concept Amounts
MOI of green Nissan car $ 95,500
Property acquisition date: March 18, 1999
Sale date of the property: June 12, 2001
Sale price of the good $ 46,250
The first thing we must determine is the accumulated depreciation of the good, to subsequently calculate its book value:
Concept Amounts
MOI $ 95,500.00
(´) Depreciation rate 25%
(=) Annual depreciation $ 23,875.00
(¸) Number of months of an exercise 12
(=) Monthly depreciation $ 1,989.58
(´) Number of months of full use 26
(=) Accumulated depreciation $ 51,729.17
Note: Accumulated depreciation is determined by complete months, that is, the acquisition month or the sale month is not considered for the calculation, with the exception of when the asset is acquired on the first day of the month or is sold on the last day of a month, respectively.
Once we know the amount of accumulated depreciation, we can determine the book value of the good that the company disposes of, this concept is determined by subtracting from the MOI the accumulated depreciation of the good at the date of disposal:
Concept Amounts
MOI $ 95,500.00
(-) Accumulated depreciation 51,729.17
(=) Book value of the property $ 43,770.83
Now, the accounting profit or loss in the disposal of assets is determined by subtracting from the sale price of the fixed asset the amount of its book value, obtaining:
Concept Amounts
Sale price $ 46,250.00
(-) Book value 43,770.83
(=) Accounting profit (loss) $ 2,479.17
Now, the accounting record of the sale of said fixed asset, in the books of the company would be as follows (suppose that the operation is agreed in cash):
Account Name Must Have
Banks $ 53,187.50
Accum. Dep. of eq. of transport 51,729.17
Other income $ 2,479.17
Eq. transport 95,500.00
VAT transferred 6,937.50
Equal amounts $ 104,916.67 $ 104,916.67
Determination of the tax profit (loss) on the sale of fixed assets
Now, to calculate the tax profit or loss on the sale of assets, we must apply in the corresponding article 37 of the LISR. It is important to note that the writing of the article in question is difficult and confusing, so it will try to establish a procedure that serves as a guide in the calculation of the concepts under study.
The first thing we must calculate is the historical MOI pending deduction, which in our case is the previously denominated book value. With the book value and historical MOI pending deduction, we can affirm that they refer to the same concept, but in accounting matters in accordance with Generally Accepted Accounting Principles, the applicable denomination is book value, while the MOI pending deduction is the legal concept established in the LISR. Thus, once the MOI pending deduction has been determined, we must update it, since this is provided in the sixth and seventh paragraphs of article 37 of the LISR, previously cited.
Concept Amounts
MOI 95,500.00
(-) Accumulated depreciation 51,729.17
(=) MOI pending deduction of historical 43,770.83
As can be seen in the previous text, the MOI pending deduction will be deducted at the time of the sale, in addition said MOI must be updated with the update factor corresponding to the period from the month in which the asset was acquired and until the last month of the first half of the period in which the asset has been used during the year for which the deduction is made.
To determine the applicable factors, in accordance with the above, we proceed as follows:
First half second half
Jan Feb Mar Apr May Jun
The period in which the asset was used during the year is the corresponding period from January to June 2001, so we divided the period of use of the asset in two, and we found two halves of the exercise. Following the procedure, we will divide the INPC for the last month of the first half of the year in which the asset was used (March 2001, last month of the first half) by the aforementioned index on the date of acquisition (March 1999).
Updating the MOI pending deduction of the amount is as follows:
Concept Amounts
Historical MOI pending deduction $ 43,770.83
(´) Update factor 1.1801
(=) MOI pending deduction updated $ 51,653.96
Now, the sale price of the good will be subtracted from the updated MOI pending deduction, and we obtain a tax loss:
Concept Amounts
Sale price $ 46,250.00
(-) MOI updated 51,653.96
(=) Tax profit (loss) (5,403.96)
Now, as it was pointed out in advance, it is advisable to register in memorandum accounts of tax items, and in the case at hand, the registration would be as follows:
Account Name Must Have
Deductible loss on sale of assets 5,403.96
Deduction for sale of fixed assets 5,403.96
Sums 5,403.96 5,403.96
Now let us remember that in terms of articles 29, 31 and 32 of the LISR, the loss that the taxpayer obtains in the disposal of assets will be deductible, with the limitation of losses due to unforeseeable circumstances, force majeure or the disposal of assets, when their acquisition value does not correspond to the market value at the time said assets were acquired by the transferor, it will not be deductible. <<<
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