Demo Vehicle — Transfer from Inventory to PPE
Reclassifying a new vehicle from inventory to a demonstrator (demo) vehicle used for test drives and management use.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Demo Vehicle (PPE / Other Asset) | Asset (+) | 26,200.00 | - |
| New Vehicle Inventory | Asset (-) | - | 26,200.00 |
💡 Accountant's Note
Demo vehicles are taken out of new vehicle inventory and reclassified as fixed assets (or other assets) when placed into use as demonstrators for test drives or management vehicles. The floor plan loan on the demo vehicle continues — the dealer pays interest on the demo vehicle during its use period. At end of demo period, the vehicle is sold as a used vehicle at the accumulated cost basis.
Practitioner & Systems Framework
💻 ERP Architecture
The DMS tracks demo vehicles separately from new vehicle inventory. When a vehicle is designated as a demo, the DMS reclassifies it from new inventory to the demo account. The floor plan lender is notified — some lenders require a curtailment on demo vehicles after a specified period. Depreciation on the demo vehicle (mileage accumulation) reduces its value — on sale as a used vehicle, the COGS is the demo vehicle's depreciated cost. Some manufacturers provide demo allowances (reimbursements for the loss in value from use as a demonstrator). Manufacturer and tax rules regulate demo usage (business purpose, mileage limits, employee benefit implications).
⚠️ Audit Flags
Auditors confirm demo vehicles are correctly reclassified from inventory (eliminating them from new vehicle inventory count). Test that the floor plan for the demo vehicle is either curtailed or the lender has approved continued floor plan financing. Review demo vehicle mileage — high-mileage demos require write-down before sale. Confirm manufacturer demo allowance credits are recognized correctly. Test that employee use of demos for personal purposes is tracked for income tax purposes (taxable benefit).
📄 Required Documentation
Demo vehicle designation record (VIN, date designated, reason), DMS reclassification from new inventory to demo, floor plan lender notification and approval, mileage log for demo period, manufacturer demo allowance program terms, depreciation calculation on demo vehicle, sale record at end of demo period (as used vehicle), and employee benefit tax reporting.
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