disposal june 2007 exam

meibaker

A vehicle has been disposed of during the year.
• The original cost of the vehicle was £12,000.
• The accumulated depreciation on the vehicle was £5,250.
• The vehicle was sold for £5,000. This amount was credited to sales and debited to the bank account. they ask you to enter the info into ETB,
my answer:
disposal 12,000 5250+5,000
vehicle 12,000
accu dep. 5250
bank ? 5,000
not sure the highlight sentence means? the answer is Dr sales 5,000.
can someone explain this for me please. thanks:001_wub:

crispy

Hi Mei,

The sentence means that when the proceeds of the disposal of the car were received they were initially and incorrectly credited to sales, so the journal would of looked like,

Dr Bank £ 5,000
Cr Sales £ 5,000

As the sale of the car was a disposal of a fixed asset and not a sales item (ie: sales are made up of the normal trading activity of the business) this need to be removed from sales and credited instead to disposals,

Dr Sales £ 5,000
Cr Disposals £ 5,000

meibaker

thanks for your reply, good luck with exams.