Help with Depreciation Acct

System

Hi,

Im struggling to get my head around this question ive been set - any help would be greatly appreciated

Business with Y/E 31st Dec depreciates its vehicles by 20% reducing balance basis.

on the 1/1/06 - the vehicle account balance is 50,000 and the prov for dep acct is £10,000

"on this date a vehicle which was purchased 1/1/04 for £10,000 was disposed of, the dealer allowed a P/ex value of £5,000 against a new vehicle costing £15,000

im confused on the journal entries i need to make and how to update the relevant T-Accounts?

thanks in advance for any help

System

Re:Help with Depreciation Acct

Hi, the first thing to do is work out the NBV of the disposed vehicle at the date of disposal.

Next you need to eliminate the cost of the asset from the vehicle cost the journal for this is-

DR Disposal Account £10,000
CR Vehicles at cost £10,000

Next you need to bring in the new vehicle, but remember the £5000 p/ex allowed. I am assuming that the remaining £10,000 was paid from the bank therefore the journal will be-

DR Vehicle Additions £15,000
CR Bank Account £10,000
CR Disposal Account £ 5,000

The next thing to do is journal out of the depreciation account the accumulated depreciation which relates to the disposed vehicle.

DR Accumulated depreciation £??
CR Disposals £??

The last step is to balance the disposals account. The balancing figure from the disposals account will be a profit on sale if it is in the DR column and a loss if it is in the CR column.

Hope this helps.

System

Re:Help with Depreciation Acct

thanks - thats a great help

System

Re:Help with Depreciation Acct

Not a problem buddy.

System

Re:Help with Depreciation Acct

I thought the way this should be done is like this:

Vehicle account should be debited 10000 when the vehicle is purchased. The accumulated depriciation account would be credited 3600 as that's two years worth of deprication at 20%. Then to write off the vehicle you'd credit the vehicle account 10000 and debit the acc dep 3600 and debit the disposal 6400. Then to account for the purchase of the new vehicle you'd debit the vehicle account 15000 and credit the bank 10000 and credit disposals 5000. This would result in a debit of 1400 in the disposals account which would mean a loss in the profit/loss account.

System

Re:Help with Depreciation Acct

Is provision for dep acct the same thing as the accumulated depreciation. I can't remember what the difference is. Anyway I thought I'd add that the vehicle account should now be 55000 in debit and the acc dep account would be 6400 in credit (assuming prov for dep is the same as acc dep).

System

Re:Help with Depreciation Acct

Phate wrote:

Is provision for dep acct the same thing as the accumulated depreciation. I can't remember what the difference is. Anyway I thought I'd add that the vehicle account should now be 55000 in debit and the acc dep account would be 6400 in credit (assuming prov for dep is the same as acc dep).

The provision for depreciation is the depreciation to be charge in the current financial year.

This is then added to the accumulated depreciation.

In response to your earlier post is is correct to it that way but you can easily get confused by doing it that way. Also by using a disposal account you can make sure that the double entry is correctly accounted for.