FRA Dec 2005 paper Help needed please

Hi can someone help me by explaining the answer to Task 2.1 of this Dec 05 paper

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 £6144
£10000 was paid from the bank account. The amount was credited to the bank account and debited to the vehicles as cost account.
A part-exchange allowance of £3500 was given.


I can understand this bit
CR 12000 vehicle at cost
DR 5856 acc depreciation vehicle
DR 3500 p/x vehicle at cost
DR 2644 loss on disposal

but I am confused about the double entry for the £10000 paid.

can anyone help at all.

Thanks:crying:

Comments

  • N4T4L1E
    N4T4L1E Registered Posts: 5 Regular contributor ⭐ ? ⭐
    I find the easiest way to do questions like this is to draw up disposals and motor vehicles cost 'T' accounts.

    Disposals 'T' for this question would contain entries you have already mentioned.

    MV cost 'T' would be:
    Dr B/f 22,000
    Dr Bank 10,000 (cost of new vehicle)
    Dr Part-ex 3,500 (cost of new vehicle)
    Cr Disposals 12,000 (old vehicle)
    C/f 23,500

    The question states that the part-exchange allowance for the new vehicle was £3,500, which therefore is part of the new vehicles cost. The £10,000 paid from the bank is the balance due on the new vehicle (i.e. actual cost of new vehicle less part exchange allowance) and therefore is also part of the new vehicles cost.

    Hope this helps! :001_smile:
  • Esme
    Esme Registered Posts: 711
    You are crediting the bank because the money is leaving the bank account and debiting the vehicles at cost account because the 10,000 is part of the cost of the new vehicle.
  • ketteringlad
    ketteringlad Registered Posts: 7 Regular contributor ⭐ ? ⭐
    A bit late now,but i'm only just reading this..

    surely u would'nt combine the motor vehicles a\c with the disposal a\c.

    u would have : disposals-cr 12000, dr dep to date= £5856,part ex value=£3500

    making a loss on disposal of £2644 as the man said..

    then,vehicle a\c dr cash paid=£10,000+part ex value=£3500 making £13500

    then credit bank £10,000

    better late than never i always say..
  • square-peg
    square-peg Registered Posts: 143 ? ? ?
    A bit late now,but i'm only just reading this..

    surely u would'nt combine the motor vehicles a\c with the disposal a\c.

    u would have : disposals-cr 12000, dr dep to date= £5856,part ex value=£3500

    making a loss on disposal of £2644 as the man said..

    then,vehicle a\c dr cash paid=£10,000+part ex value=£3500 making £13500

    then credit bank £10,000

    better late than never i always say..

    No the earlier post was correct - you have to credit the 12000 disposal from the mv cost account, to show the fact that you no longer have this asset, and debit it to the disposals account.
    The bank is credited 10000 and that is debited to mv cost to show part-payment for new asset, and the rest of the payment is shown by debiting the part-ex to mv cost, and crediting to the disposal.
    the accumulated depreciation is debited to show it being removed, and credited to the disposals to give you the amount of loss on disposal.
  • ketteringlad
    ketteringlad Registered Posts: 7 Regular contributor ⭐ ? ⭐
    three pints of lager.

    yeh,thanks square peg..

    i got the entries reversed..funny how ur mind clouds over after 3 pints of lager

    and a packet of crisps..

    got it right in the exam tho...where it counts..

    have fun(till the next exam)
  • square-peg
    square-peg Registered Posts: 143 ? ? ?
    3 pints of lager

    and a packet of crisps

    ooohhh......that's a tv show isn't it?! :laugh:
  • A-Vic
    A-Vic Registered Posts: 6,970
    square-peg wrote: »
    ooohhh......that's a tv show isn't it?! :laugh:

    a good one too lol
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