Dispoal of Fixed Assets and Part-exchange allowance
Hunta
Registered Posts: 3 New contributor 🐸
Hi
I'm new to this forum and I'm hoping that someone can help me with the question below. I seem to have a mental block with anything to do with disposal and part exchange of fixed asset!! The question was taken from(FRA) December 2005
Sam James part-exchanged his business vehicle during the year.
• The original cost of the vehicle which was part-exchanged was £12,000.
• The net book value of the vehicle which was part-exchanged was £6,144.
• £10,000 was paid from the bank account. The amount was credited to the
bank account and debited to the vehicles at cost account.
• A part-exchange allowance of £3,500 was given.
(d) A full year’s depreciation needs to be provided on the new vehicle at 25%
reducing balance.
Thanks to anyone that can help me! :001_smile:
I'm new to this forum and I'm hoping that someone can help me with the question below. I seem to have a mental block with anything to do with disposal and part exchange of fixed asset!! The question was taken from(FRA) December 2005
Sam James part-exchanged his business vehicle during the year.
• The original cost of the vehicle which was part-exchanged was £12,000.
• The net book value of the vehicle which was part-exchanged was £6,144.
• £10,000 was paid from the bank account. The amount was credited to the
bank account and debited to the vehicles at cost account.
• A part-exchange allowance of £3,500 was given.
(d) A full year’s depreciation needs to be provided on the new vehicle at 25%
reducing balance.
Thanks to anyone that can help me! :001_smile:
0
Comments
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With these types of questions, the first thing to do is to understand the original entries. When the car (that was part exchanged) was purchased, the entries would have been debit vehicles credit bank. Over the period we have charged depreciation which is credit vehicle depreciation, debit depreciation in the profit and loss account.
When it comes to disposing of this asset you're simply reversing the entries above.
On Disposal
Credit motor vehicles (balance sheet) £12,000 (the original entry would have been a debit)
Debit profit and loss on sale of vehicles £12,000
Being disposal of motor vehicle cost
Debit motor vehicle depreciation (bal sheet) (12,000 - 6144) £5,856
Credit profit and loss on sale of vehicles £5,856
Being reversal of accumulated depreciation charged todate
Debit Motor vehicle cost £3,500
Credit Profit and loss on sale of vehicle £3,500
Being part ex allowance given on vehicle This journal is done because the origianl cost price of the vehicle would have cost an extra £3,500 had there been no other vehicle to part-ex.
Those journals gets rid of the vehicle in the books and calculates the profit/loss. The next thing is to bring in the new vehicle.
Motor vehicle addition
Debit motor vehicles £10,000
Credit cash £10,000
Being cash paid from bank for new vehicle This journal has already been done in your question, so don't duplicate it (i've illustrated this to show how the journal would be done.
Balance Sheet Extract
Motor vehicles (£3,500 + £10,000) £13,500
Motor vehicle depreciation (£13,500 x 25%) £3,375
Net book value of the new vehicle is therefore (13,500 - 3.375) £10,125
Profit and loss extract
Motor vehicle depreciation charge for the year £3,375
Profit/Loss on Sale of Vehicles:
Cost................................................ £12,000
Eliminated depreciation on disposal.........(£5,856)
Trade in value....................................(£3,500)
Loss on disposal per accounts............... £2,6440
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