16 May 2018
Dear Sir, Thanks for your response . We are packing machine manufacturer and we have received old machine against RGP from our customer for repair purpose. But after dismantle of machine our engineer found that machine is not repairable. Now our customer request us to scrap old machine at our end & treat amount received as a advance for fresh machine order. So kindly guide me is it possible to sale old machine of customer at our end & how to clear RGP?
10 July 2024
If you have received an old machine against RGP (Received Goods for Processing) from your customer for repair purposes, and your engineers have determined that the machine is not repairable, you may explore the option of selling the scrapped machine and adjusting the amount received as an advance for a fresh machine order. Here’s a step-by-step guide on how to proceed:
### 1. **Confirm Agreement with Customer:**
- Ensure that your customer agrees to sell the scrapped machine at your end and treat the amount received as an advance for a new machine order. This agreement should be documented either through correspondence (emails, letters) or a formal agreement.
### 2. **Scrap the Machine:**
- Arrange for the proper dismantling and disposal of the old machine. If there are any hazardous materials or components that require special handling, ensure compliance with environmental regulations.
- Contact local scrap dealers or recycling centers to assess the value of the scrap metal or components of the old machine.
### 3. **Valuation and Sale:**
- Obtain quotes from scrap dealers or recyclers for the value of the scrapped machine. This valuation will determine the amount you can recover from the sale of the old machine.
- Once you have a buyer or a scrap dealer, sell the scrapped machine. Issue a sales invoice to the buyer detailing the transaction, including the amount received.
### 4. **Adjustment in Accounts:**
- Adjust the amount received from the sale of the scrapped machine against the advance received from your customer for the fresh machine order. Ensure proper accounting treatment to reflect this adjustment in your books.
- If there is any difference between the amount received and the advance provided, either refund the excess amount to your customer or adjust it against future invoices as per your agreement.
### 5. **Clear RGP:**
- Notify your customer about the completion of the RGP process and the sale of the scrapped machine. Provide them with a final statement detailing the amount received from the sale and how it has been adjusted against their advance.
- Obtain confirmation from your customer acknowledging the closure of the RGP transaction and the adjustment of the advance amount.
### Important Considerations:
- **Legal and Contractual Obligations:** Ensure that all actions comply with the terms of your agreement with the customer regarding RGP and the handling of the scrapped machine.
- **Documentation:** Maintain records of all communications, agreements, invoices, and receipts related to the RGP process and the sale of the scrapped machine.
- **Tax Implications:** Consult with your tax advisor to understand any tax implications related to the sale of the scrapped machine and the adjustment of advance payments.
By following these steps and ensuring clear communication with your customer, you can effectively manage the situation where a machine received for repair cannot be repaired and needs to be scrapped, while properly handling the financial aspects related to the advance received.
CAclubindia
