BOP Program Statement 8563.07 § 13

or abandonment. Generally when this occurs, the appropriate M&E

account is credited and the corresponding Accumulated

Depreciation account is debited.

Any disposal of M&E must be in accord with the requirements and

restrictions concerning the use and disposal of fixed assets in

41 CFR 101-42 through 46 and the Program Statement on Disposition

of Personal Property and a Report of Survey (FPI Form 30).

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When an asset is removed from the M&E account in anticipation of

disposal, retirement, or removal from service, depreciation of

that asset is to cease.

a. Sale of M&E. Any related gain or loss from the sale of M&E

is recognized as either a debit or credit to Gain/Losses on

Disposition of Assets (721000). The initial entry is performed

in Millennium using the Scrapping transaction and the Dispose

Without Revenue feature.

The Gain/Losses on Disposition of Assets account must be

identified with the location’s profit center. Documentation is

then sent to Centralized Accounts Receivable (CAR) in Lexington

KY, where the buyer is to be invoiced for the sales amount of the

fixed asset. Upon invoicing the buyer, CAR is to credit the

721000 account identifying it with the field location’s profit

center.

Example: A machine with a capitalized value of $18,000 and

accumulated depreciation of $15,000 is sold at

auction for $4,000. The resulting journal entry

recording the asset’s disposition is as follows:

Accounting for the Transaction recorded at Field Location:

721000 Gain/Loss on Disposition of Asset 3,000

(using field location’s profit center)

175900 Accumulated Depreciation, M&E 15,000

175100 Machinery & Equipment $18,000

Accounting for the billing transaction performed at CAR:

131500 Public Billings 4,000

721000 Gain/Loss on Disposition of Asset 4,000

(using field location’s profit center)

The CAR must perform the transaction using the field location’s

profit center.

b. Trade-In of M&E. Purchasing a new machine may, on occasion,

involve trading in an old machine. When this occurs, a gain or

loss is recognized based on the new machine’s fair market value.

The theory is that the earnings process for the old machine is

complete and therefore, a gain or loss has occurred.

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Example: A machine with a capitalized value of $18,000 and

accumulated depreciation of $15,000 is traded on a

new machine valued at $21,000. The vendor gave an

allowance of $1,000 on the old machine. The loss

recognized is $2,000.

Old Machine $ 18,000

Less: Accumulated Depreciation 15,000

Net Book Value 3,000

Amount owed to vendor ($21,000 - 1,000) 20,000

Total Acquisition Cost 23,000

Less: Fair Market Value of New Machine 21,000

Loss on Trade-In $ 2,000

The resulting journal entries recording the acquisition and

trade-in is as follows:

JOURNAL ENTRY 21

175100 M&E, (New) $ 1,000

175900 Accum Depr, M&E (Old) 15,000

721000 Losses on Disposition of Assets 2,000

175100 Machinery (Old) $18,000

175100 M&E (New) $20,000

232100 Goods Receipt/Invoice $20,000

Receipt (GR/IR)

The same acquisition, having a trade-in allowance of $4,000,

would incur a gain of $1,000.

Old Machine $ 18,000

Less: Accumulated Depreciation 15,000

Net Book Value 3,000

Amount owed to vendor ($21,000 - 4,000) 17,000

Total Acquisition Cost 20,000

Less: Fair Market Value of New Machine 21,000

Gain on Trade-In $ (1,000)

The resulting journal entries recording the acquisition and

trade-in are as follows:

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JOURNAL ENTRY 21

175100 M&E, (New) $ 4,000

175900 Accum Depr, M&E (Old) 15,000

175100 Machinery (Old) $18,000

721000 Gain on Disposition 1,000

of Assets

175100 M&E (New) $17,000

232100 GR/IR $17,000

c. Abandonment of M&E. Abandonment of M&E may include

machinery that is donated, abandoned, destroyed, or otherwise

disposed of at no remuneration to FPI. Then, any remaining book

value on the equipment is charged to the Gain/Loss on Disposition

of Assets account (721000).