Replacing machines with a supplier trade-in
How a gym records replacing old treadmills and bikes when the supplier takes them as part payment: the new assets, the disposal, the bill and depreciation.
By Achekam · · 4 min read · For Fitness businesses in South Africa, Nigeria, Kenya
The cardio floor is tired. Belts slip on two treadmills, a bike's console flickers, and members have started queuing for the newer machines. The equipment supplier offers a deal: new treadmills and bikes, with the old ones taken away and an allowance knocked off the price. One invoice, one delivery, and the old machines disappear on the same truck.
It feels like a single purchase at a discount. In the books it is two separate events, and recording it as one is a common way for a gym's fixed assets to drift away from what is actually on the floor. This article separates the two and shows how to record each in Achekam.
Two transactions hiding in one deal
A trade-in is a sale and a purchase that happen to share an invoice:
| The old machines | The new machines | |
|---|---|---|
| What happens | You sell them to the supplier | You buy them from the supplier |
| The value | The trade-in allowance | The full price before the allowance |
| In the asset register | Disposed of | Added at cost |
| In profit or loss | A profit or loss on disposal | Depreciation from now on |
The allowance is not a discount on the new machines; it is what the supplier paid you for the old ones. If you record only the net amount as the cost of the new equipment and quietly forget the old, the new machines are under-valued and the old ones stay on your register, still depreciating, long after they have gone.
The IFRS Foundation's summary of IAS 16 Property, Plant and Equipment sets out the principles for recognising equipment, measuring its carrying amount and working out depreciation. Your accountant will apply those principles; the steps below give them clean records to work with.
Adding the new machines at cost in the asset register
Achekam's fixed-asset register lets a business add assets at cost, depreciate them monthly by straight line or reducing balance with a journal each month, and dispose of them with the profit or loss posted. It is not part of Business Essentials, so check your plan includes it.
Add each new machine, or each identical group of machines, as its own asset, at its full cost before the trade-in allowance. Include delivery and installation if the supplier charges them, and agree with your accountant whether VAT is part of the cost for your business. Record the serial numbers in the description. Next time a machine is replaced, you will know exactly which asset is leaving.
Disposing of the old machines with the profit or loss posted
Find each old machine in the register and dispose of it, with the trade-in allowance as what you received for it. The register posts the profit or loss on disposal: if the allowance is more than the machine's remaining book value, a profit; if less, a loss.
If the supplier gives one allowance for several old machines, split it between them in a sensible way, such as by their remaining book values, and keep a note of how you did it. If the old machines were never on the register, or were fully depreciated, tell your accountant before you dispose of anything.
The supplier bill and the trade-in allowance
The supplier's invoice will usually show the new machines at full price, the trade-in allowance taken off, and the amount you owe. Record it as a supplier bill, line by line with its VAT. A bill without a purchase order waits for approval before it posts, and it can be paid in full or in parts from the bank account you choose.
The detail to settle with your accountant is how the allowance line is entered, so that:
- the new machines' full cost is recorded once, not twice through both the bill and the register;
- the allowance appears as the proceeds of the old machines, not as a reduction in the new machines' cost;
- the amount you pay the supplier is the net figure on their invoice.
How you enter it depends on how the supplier set out the invoice and how your chart of accounts is arranged. Your books open with a standard chart of accounts, and you can add accounts, such as a clearing account for the trade-in, if your accountant suggests one. A posted journal is corrected only by reversing it, so agree the entries before posting.
For clubs in Nigeria and Kenya: supplier bills currently offer only 15% or 0% VAT and default to 15%, rather than your own country's rate. Check the VAT on each line of the equipment bill before it posts.
Monthly depreciation from then on
From the month the new machines go into use, the register depreciates them monthly, by straight line or reducing balance, with a journal each month. Choose the method and the useful life with your accountant. Commercial gym equipment works hard, and a realistic life is better than an optimistic one.
The register does not work out tax wear-and-tear, so your accountant handles the tax side separately. Once a quarter, open the trial balance and compare the equipment cost and accumulated depreciation with the register. They should agree.
Walk the gym floor with the register once a year and tick off every machine. Anything on the register but not on the floor needs disposing of; anything on the floor but not on the register needs adding. For equipment you lease rather than buy, read leased premises and equipment, and for setting up a new club's books from the start, see the new gym set-up checklist.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
