Procedure for removal of property from the balance sheet of a legal entity

General information

In practice, legal entities often face the need to remove obsolete property from their balance sheet. To do so, the relevant procedure prescribed by law must be followed.

The procedure for removing property from the balance sheet of state enterprises and organizations, as well as enterprises with state participation in their charter capital is directly regulated by law. However, no specific normative act has yet been adopted to regulate this procedure for private enterprises. For this reason, in practice, the rules applied to state enterprises are usually used when private legal entities remove property from their balance sheet.

Inventory of property

The removal of property involves several procedural stages. The first step is to conduct an inventory. The inventory process includes the following stages:

(i) Establishment of an inventory commission;

(ii) Conducting the inventory;

(iii) Formalizing the results of the inventory.

The head of the enterprise or one of his/her deputies serves as the chairperson of the commission and the head of the accounting department acts as the deputy chairperson. If the inventory commission is created solely for the purpose of eliminating unusable property, it performs the functions of a liquidation commission.

Before the inventory begins, the responsible person must provide the inventory commission with information (an explanation) about the condition of the assets under his/her responsibility and the records kept. All members of the inventory commission must be present during the inventory process. The inventory commission prepares a separate list of assets that are unusable, unfit for repair or restoration, indicating the date when the assets were put into operation and the reasons for their unfitness (damage, complete depreciation). A corresponding act is then drawn up and approved based on the inventory results.

If the property becomes unusable due to damage, it’s not removed from the balance sheet, in such cases, the property must be restored to working condition. Property may only be written off when it becomes unusable due to depreciation. In such cases, a liquidation act must be prepared to record the loss of ownership rights of the legal entity over the movable property in the balance sheet.

Determining the physical disposal of property to be written off

Before the property intended for removal based on the liquidation act is discarded, it must first be determined whether it constitutes hazardous or non-hazardous waste. Hazardous waste includes substances with dangerous characteristics—explosive, flammable, oxidizing, toxic, infectious, corrosive, or ecotoxic—that pose an actual or potential threat to human health and the environment.

If the written-off property is classified as hazardous waste, to prevent harm to human health and the environment, it may not be stored on the premises of the enterprise for more than 6 months. Such waste must be delivered to a designated waste disposal site (hazardous waste landfill). Non-hazardous industrial waste, however, may not be disposed of in containers designated for household waste, otherwise violation of this rule entails liability.

Formalization of the disposal of property to be written off

Before entering into a contract for the transfer of hazardous waste, a positive opinion from the state environmental expertise must be obtained. Both hazardous and non-hazardous waste transfers must be documented through a transfer agreement and an act of delivery and acceptance.

Formalization of other methods of disposal of property to be written off

The legislation does not specifically regulate the formalization procedure for the disposal of property through burial or incineration. However, in order to properly reflect the property’s removal from the balance sheet in a lawful manner, it is advisable to draw up an act confirming the disposal of the property by burial or incineration.

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Note: Since the procedure for removing property from a legal entity’s balance sheet is individual in nature, the documentation may vary depending on the specifics of each case. Therefore, we strongly recommend obtaining professional legal assistance when implementing this procedure. You may contact us for consultation and take advantage of our professional legal services.

Sincerely,

Bonafide Law Firm