accounting for part exchange

Hi i am a new MIP still in my first year and i have taken on a client who sells motorbikes but takes other in part xchange. I am trying to work out how i do the double entry for these transactions. He has sold a bike for £4700, he got a p/x worth £3000 and £1700 in cash. I should be grateful if someone would let me know how to do the double entry for this? He is also VAT registered. Many thanks :confused1:


  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    This is a disposals account scenario.

    You dispose of the old one for whatever he got for it (£4700), using normal disposals account journals.
    You then post in the new asset for what he paid for it (£3000).

    You can say the £3000 came in and then out of the cash account if that helps - it nets off against itself.

    I assume the £4700 included VAT as did the £3000 and if it did, post accordingly. I never remember the specifics of VAT though.... :p
  • deanshepherd
    deanshepherd Registered Posts: 1,809
    It's not a disposals account issue. This is trading stock being sold by a dealer.

    Not really my area of expertise but presumably credit sales, debit purchases (for the p/x), debit bank for the cash.

    I suspect a margin scheme is being used for the VAT. Check with his accountant on how they would like the transactions recorded.
  • Tiger
    Tiger Registered Posts: 63 ? ? ?
    As he trades in the business of buying and selling motorcycles the transacation would be nothing to do with asset purchase and disposals surely??

    Its just a straight purchase of 'stock' to the tune of £3000.00 inc vat and the sale of other 'stock' for £4700.00 including vat. It would simply be an sales invoice and a purchase invoice....
    Hope this helps

  • burg
    burg Moderator, FMAAT, AAT Licensed Accountant Posts: 1,441
    Agree with tiger and dean,

    not assets would be trading stock, the £1700 cash received would be the balance of the transaction.

  • groundy
    groundy Registered Posts: 495
    If VAT is involved then it is likely it will be on a second hand goods scheme and therefore VAT is payable on the profit only and nothing is reclaimable were a loss is made.

    With this sort of business you are best keeping a stock book as well as a cashbook. Each bike is recorded in the stock book at its cost and then it is easy to compare the sale price and monitor individual profits for VAT.

    For accounting the part exchange would be a debit to purchases and a credit to sales. There would then be a journal for the VAT probably each quarter to debit sales and credit VAT account.

    The stock book is also useful to monitor that all sales and purchases are recorded by tracking the reg no.
  • clearaccounting100
    clearaccounting100 Registered Posts: 49 ? ? ?
    Thanks everyone its much appreciated. That makes much more sense, i thought it was a sales and purchase issue but got myself so confused! The second hand vat scheme makes sense too. When i started i checked with HMRC about how to deal with the VAT on p/x and they told me that my client needed to charge the VAT on the whole amount. My client nows tells me that when he went on a VAT seminar run by HMRC that he asked the question re p/x's and they said that he only had to apply the VAT fraction to the difference. I take it the HMRC guy i spoke to advised me as though he wasn't on the scheme and the HMRC guy at the seminar was talking about the second hand scheme. Is the second hand scheme the same as marginal? I know i'm being a bit dumb but all my other clients are so straight forward with their VAT i not had complications like this before :001_smile:
  • Poodle
    Poodle Registered Posts: 711

    If you are going to use the second hand goods margin scheme for them then you should be aware of the strict rules regarding record keeping, in particular information to be put on sales invoices, records of purchses and stock book. Failure to keep these records correctly could result in VAT becoming liable on the whole amount of a sale not just the margin.

    If you are to opperate this scheme then I strongly suggest that you obtain a copy of the VAT notice
    Here and take some time to ensure that your records are set up correctly.

    The notice covers the marginal, global and actioneers schemes. I have only had one client using this for second hand furniture and it took a while to 'educate' them into complying with the rules:)

  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    It's not a disposals account issue. This is trading stock being sold by a dealer.

    I knew that. I read the OP. Really I did.

    *goes away to sleep*

  • clearaccounting100
    clearaccounting100 Registered Posts: 49 ? ? ?
    thanks Poodle, that has helped a lot :001_smile:
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