1. Trade-In Assets – Recognizing the Accounting and Physical Inventory Impact Bob Mahaney, CPPS Manager Program Accounting and Finance MD Anderson Cancer Center smahaney@mdanderson.org

2. Who’s In The Room? New member this year? First NES? Type of business University Contract Property/Federal State/Local Government Private

3. Trade-In Assets The disposal of property through trade-in is a simple process on the surface. “Used property is offered to the vendor from whom similar equipment (in most cases) is being purchased.”

4. Have you heard this one? “I save the institution money because I trade-in old equipment when I buy new equipment.” “That oscilloscope can’t be on my inventory. I traded it in on a new one last year.” “The vendor picked up the trade-in equipment already. Did they sign what?”

5. Financial Considerations Trade-in assets can have a dramatic impact on the margin. Profit or non-profit, we all have a margin. Assets that are not fully depreciated have loss potential.

6. What actually causes the loss? Trading in assets with remaining useful life. Asset has a net book value (NBV). NBV = Cost minus Accumulated Depreciation. Vendors Trade-in Credit less than NBV. Additional cost paid by institution to remove trade-in asset.

7. Calculating the Financial Impact Asset Cost$ 8,400,000 Useful Life84 Months Remaining Life24 Months Accumulated Depreciation$ 6,400,000 NBV$ 2,000,000 Trade-in Credit from Vendor$ 1,000,000 Trade-in Loss$ 1,000,000

8. Calculating the Impact Asset Cost$ 8,400,000 Useful Life84 Months Remaining Life24 Months Accumulated Depreciation$ 6,400,000 NBV$ 2,000,000 Trade-in Credit from Vendor$ 1,000,000 Estimated Sales Proceeds$ 2,200,000 Gain on Sale$ 200,000

9. Mitigating Financial Impact Effective Trade-in policy. Incorporates the gain/loss calculation into the buying decision. Identifies whether cash sale off trade-in asset is an option. Evaluate cash sale price verse vendor’s trade- in credit.

10. Mitigating Financial Impact (contd.) Effective Trade-in policy (contd.). If asset has 50% of useful life remaining, require the department to justify giving up an asset with that much life remaining. Require sign-off by department head or Property Administrator for the department.

11. Physical Asset Considerations Physical Transfer of the Trade-in Asset Trade-in asset may remain in-service until close to delivery date of new asset. Larger assets can require a professional to uninstall and prepare for shipping. Transfer must be documented.

12. Physical Asset Considerations (contd.) Groups that may need to be involved. Environmental Health & Safety. Remove radioactive devices. Prepare specialized documentation for transport of hazardous chemicals/material

13. Physical Asset Considerations (contd.) Facilities. Ensure building integrity is maintained for large asset removal. Provide best pathway for asset removal Campus or City Police Manage traffic or security issues

14. Ownership Transfer Critical part of the trade-in process. Ownership transferred to vendor at pick up. Clear documentation is required. Audit considerations.

15. Ownership Transfer (contd.) Documentation Requirements. Bill of lading signed by vendor’s representative. Documents trade-in assets under control of vendor. Signed and dated by carrier and Property Custodian

16. Ownership Transfer (contd.) Institutions Trade-in Asset Form (hardcopy). Signed and dated by vendor or carrier. Signed and dated Property Custodian

17. Ownership Transfer (contd.) Sufficient to met institutions audit needs. Original ownership transfer documents sent to Finance Department for final processing. Remove trade-in asset from inventory. Add trade-in credit value to replacement asset.

18. Trade-in Policy Supports an accurate and correctly valued asset inventory. Supports good financial decisions. Provides controls to assure financial analysis of assets acquired through trade-in. Addresses the physical removal and ownership transfer of the trade-in asset.

19. Questions