disposal on section 2.1 (c) dec 05 fra

taskey

help i am stuck

i am ok with disposals usually but this has really stumped me and i am unsure how they get the answer

can anyone help me


(c) 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.

answers are here http://www.aat.org.uk/other_files/FRADec05answers.pdf

i have the answers but as stated above i cannot fathom out why or where.

many thanks

Tracy

visha

You are looking at the suggested answer and on the adjustment column there is a credit of £10,000 against Vehicle at Cost that is confusing you.

The correct entries should only be a debit of £3,500 on the debit side of the adjustment column against Vehicle at Cost and NOT £13,500. (as £10,000 has already been debited to MV@cost and credited to the bank a/c when a cheque was issued) and therefore an ajustment of 10,000 is needed on the credit side.

Remember these are suggested/guidance answers: Your net balance on the Motor vehicle a/c should be (12,000 + 13,500 – 12,000 = 13,500)

When you work out the balance on the suggested answer it is (22,000 + 13,500 – 12,000 – 10,000(adjustment) = 13,500)

The journals should have been (J1,J2,and J3)

Disposal a/c............J1..................12,000
Disposal.................J2....................... .........5,856
Disposal.................J3....................... .........3,500.........Net Loss 2,644

Acc. Depreciation....J2...................5,856

Bank a/c (MV@Cost).................................10,000

Motor Vehicle at cost.....J1........................12,000
Motor Vehicle at cost.....J3............3,500 .................(Answer Error Here-debit.as13,500)

Bank........................................10.000 ...............New Bal c/d 13,500

The Error on the answer is indicated above.