Accounting treatment of in kind contribution of tangible assets

December 02, 2020

In this article, we would like to explain how the in-kind contribution of a tangible asset should be accounted for and why this type of tangible asset derecognition should be treated differently.

First of all, it is important to emphasize that tangible assets can be disposed on several titles, the most common of which are:

- sale

- transfer in kind

- transfer free of charge

- scrapping, shortage

- reclassification (to current assets).

In contrast, the Accounting Act contains special rules for accounting for transfers in kind, which do not follow the principle of gross accounting, but prescribe the so-called netting, which was introduced into the Accounting Act not so long ago *  and these are:

'Other revenues include:

 k) * the difference between the book value of the non-securities or property rights entered into the company by the owner (member) of the company and the value specified in the memorandum of association, if the value specified in the memorandum of association is more; "

'Other expenses include:

k) * the difference between the book value (book value) of assets, property rights entered into the company at the owner (member) of the company, which are not securities or shares, and the value specified in the articles of association, if the book value is more;

Based on the above, it can be seen that in the case of in-kind contributions, the book value of the tangible asset (gross value and offsetting of depreciation) must be accounted for in the balance sheet first, and then it must be compared whether the book value or the in-kind contribution document value is higher.The difference between the two values ​​is the higher of the two values ​​and, depending on the higher value, should be recognized in other income or other expenses.

If our article proves useful and you have any further questions, feel free to contact our experts.

*/ provisions of Act on Accounting Section 77 paragraph (3) point k) and Section 81 paragraph (2) point k)

Made by Zoltán Pályi, Partner of Ecovis Tax Solution