Equipment Trade-Ins
(Purchased or Leased)

Correct itemization of equipment trade-ins is essential for the accurate payment of sales tax, the assignment of the correct dollar value for inventorial equipment, and successful tracking of University owned equipment traded in on new equipment.

Definitions
Purchase Order for Purchased Equipment with Trade-In
Payment Process for Purchased Equipment with Trade-In
Purchase Order for Leased Equipment with Trade-In
Payment Process for Leased Equipment with Trade-In
Retirement and Removal of Leased Equipment

Definitions

Trade-In: The simultaneous exchange of equipment to which UC holds title, for equipment to which UC will hold title. It provides a financial advantage towards the acquisition of the new equipment. Acquisition of the new equipment may be a direct purchase or financed via a Lease Purchase.

Trade-In on Lease: The simultaneous exchange of equipment to which UC holds title, for equipment to which UC will not hold title. This exchange results in a cost advantage toward financing the new leased equipment.

Trade-In on Lease-Purchase (Installment): The simultaneous exchange of equipment to which UC holds title, for equipment to which UC will hold title. This exchange results in a cost advantage toward new equipment being financed.

Retirement and Removal: The simultaneous exchange of equipment to which UC does not hold title, for equipment to which UC will not hold title. This transaction does not represent a true Trade-In because it does not involve UC equipment, nor does it result in a financial advantage for UC. It represents only removal of an old Leased machine in exchange for installation of a new Leased machine.

Important: For direct purchases, California sales tax must be paid on the full value of the equipment being purchased BEFORE the trade-in amount is deducted.


Note: Rebates — Purchase orders requiring a reduction to a “post sales tax” total, like a dealer rebate on a vehicle, must follow these procedures.


Note: The following procedures will not work in those rare situations where the trade-in value exceeds the value of the new item being purchased. Please contact Central Purchasing for guidance in these situations.

Purchase Order for Purchased Equipment with Trade-In

1. Use COMMODITY LEVEL ACCOUNTING in any purchase of equipment.
    
2. In Document Text instruct vendors to itemize the invoice as follows:

• Full value of new equipment (before the trade-in amount is deducted)
• Sales tax on full value
• Less the trade-in allowance
• Freight charges if applicable
• Total amount due

3. At the beginning of the COMMODITY DESCRIPTION in the Commodity/Accounting Block, enter double asterisks (**) as a flag to alert FAST.
    
4. Complete the following information in line item text:

• INVEQUIP clause: insert and complete all required data
• Property number, description of the equipment being traded in, and the trade-in allowance amount
• Full value of the new equipment before the trade-in allowance
• Correct equipment account code for the equipment being purchased
• FOAPAL for the trade-in credit, if different than the equipment FOAPAL

5. The EXTENDED AMOUNT for the equipment should reflect the NET amount of the purchase price LESS the trade-in allowance and should be coded as “NOTX.” This will prevent the over encumbrance of department funds and the incorrect calculation of applicable sales tax on the reduced amount. Remember, California sales tax must be paid on the full value of the equipment being purchased before the trade-in amount is deducted.
    
6. Use account code 007130 for all line items associated with the equipment purchased with a trade-in allowance (i.e., equipment, sales tax, freight charges, etc.). In Line Item Text, note whether the equipment trade-in is inventorial. If inventorial, include the property number of the item or items.
    
7. Multiple FOAPALs must be entered in percentages; not dollar amounts.
    
8. Enter a separate line item for any freight charges. Code freight as “NOTX.”
    
9. Enter another separate line item for sales tax exactly as follows:
   “TRADE-IN: tax on full value of $xxxx.” Code this line item as “NOTX.” The extended amount should reflect the applicable sales tax rate on the full value of the equipment prior to the trade-in allowance.

Example of a Trade-In (Non-Lease)

Line item #1:
Description: 1 EA **Complete Acquisitions System, less trade-in
Extended Amt: $2,999,980.01 (NOTX)
Text: Panacea Products model “Whiz-Bang 1000” $3,000,000.00
Less: trade-in “GLO-60 Ledger System 666” -19.99
Net cost $2,999,980.01

Line item #2:
Description: TRADE-IN: Sales tax on full value of $3,000,000.00
Extended Amt: [sales tax % X full value of $3M] $247,500.00 (NOTX)

Payment Process for Purchased Equipment with Trade-In

1. In the BANNER invoice, record the full dollar value of the new equipment plus sales tax and freight (if applicable) and charge the equipment account code indicated by the campus unit in commodity line item text.
    
2. Complete a BANNER Credit Memo to record the trade-in allowance for the old equipment against account code 007130 and credit the FOAPAL provided in commodity line item text. Be sure that text references equipment being traded in is inventorial or not. If information is missing, contact Purchasing.
    
3. Process the BANNER invoice and credit memo at the same time with the same payment due date so both transactions will be recorded on the check stub and the correct amount will be paid to the vendor.

Purchase Order for Leased Equipment with Trade-In

1. After entering first commodity as instructed in Creating Equipment Lease Requisitions, or Creating Equipment Lease-Purchase Requisitions (Installment Purchases), enter a second commodity line item for the trade-in equipment as follows:

• Begin the description with a double asterisk (**) and trade-in.
   
• Enter a value of $10.00 coded “NOTX” to provide a line item for AP to record the trade-in amount for inventory purposes. In line item text enter the clause “TRADELIN” and complete all applicable fields. Type [F10] Commit and return to FPAREQN by clicking on the Exit icon.
   
• Assign the account code 007130 to flag the equipment trade-in for Equipment Administration purposes. In Line Item Text, note whether the equipment trade-in is inventorial. If inventorial, include the property number of the item or items.

Payment Process for Leased Equipment with Trade-In

1. In the Banner invoice for the first monthly/quarterly payment, include both commodities: the payment and the trade-in allowance. Adjust the trade-in allowance from $10.00 to reflect the full dollar amount of the trade-in allowance.
    
2. Complete a separate Banner credit memo to record the full amount of the trade-in allowance amount and credit the FOAPAL with the account code 007130. No sales tax should be applied to the Credit Memo.
    
3. Process the Banner invoice and credit memo at the same time with the same payment due date, permitting the correct payment to the vendor.

Retirement and Removal of Leased Equipment

See the definition of Retirement and Removal (above). The procedure for retirement and removal is as follows:

Active Lease: If the old machine (which is being retired) is now actively leased and you are exercising early termination, then you must prepare a Change Order to the old Lease stating your intention and zeroing out the old encumbrance. In your termination Change Order reference the new Requisition or Purchase Order number. This process provides a clear audit trail. In the text of the new Lease, reference the terminated Purchase Order number.

Term Lease: If the old machine (which is being retired) is at term of Lease and you have made all payments, you do not need to prepare a Change Order. Simply reference the original Purchase Order number in the text of the new Lease contract. No commodity line will be added to the Purchase Order.