Home Services Business Advisory Sale of items previously rented Sale of items previously rented Issue My client works in the disability sector selling and renting mobility items (such as scooters). Typically they will rent scooters for 1-3 years then sell the items. How should they account for the sale of these items? Conclusion Where an entity routinely sell items, that had previously been held for rental and classified as property, plant and equipment, AASB 116.68A requires that they are transferred to inventory at their carrying value on the date they become held for sale rather than rent. The item should not be classified under AASB 5 non-current assets held for sale. Revenue from the subsequent sale (using the principles in AASB 15 Revenue from Contracts with Customers) is then recognised gross rather than net. The IASB concluded that the presentation of gross revenue, rather than a net gain or loss (profit on sale of PPE), would better reflect the ordinary activities of some such entities and amended AASB 116 accordingly. The IASB also made a consequential adjustment to AASB 107 Statement of Cash Flows to require that both the cash payments to manufacture or acquire assets held for rental and subsequently held for sale and the cash receipts from rentals and sales of such assets are presented as from operating activities. Example: A scooter was purchased for $10,000 and rented out for 3 years At the end of year 3 the carrying value of the scooter was $7,000 ($3,000 in accumulated depreciation) The organisation then decided to sell the scooter (sale price $9,000) At the end of year 3 the entity should transfer the PPE to inventory (at $7,000) and record sales revenue of $9,000 and COGS $7,000. Background AASB 116 68A However, an entity that, in the course of its ordinary activities, routinely sells items of property, plant and equipment that it has held for rental to others shall transfer such assets to inventories at their carrying amount when they cease to be rented and become held for sale. The proceeds from the sale of such assets shall be recognised as revenue in accordance with AASB 15 Revenue from Contracts with Customers. AASB 5 does not apply when assets that are held for sale in the ordinary course of business are transferred to inventories. AASB 107 14 …. cash payments to manufacture or acquire assets held for rental to others and subsequently held for sale as described in paragraph 68A of AASB 116 Property, Plant and Equipment are cash flows from operating activities. The cash receipts from rents and subsequent sales of such assets are also cash flows from operating activities.