Disposals

Abbie28

Any tips on Disposals? i cant get the hang of them...

RyanW

Hi Abbie, i thought i would answer so i could jogg´ my memory. After a bit of practice they become a simple accounting treatment. Firstly the disposal account is an "artificial" account if you like like a apporporation, its just there to ´satisfy´the double entry, if you like. Therfore if we forget the disposal account it would look like so.

CR Fixed Assest Cost
DR Accumulated Depn
DR Bank (proceeds)
DR/CR Profit/loss with balancing figure.

so...

Say a fixed asset at cost was 50,000, and it had accumulated depn of 20,000 we recieved proceeds of 10,000

CR Fixed asset 50,000
DR Accm Depn 20,000
DR Bank 10,000

---

---

DR P/L 20,000

Abbie28

Hello

Thank you for that now i understand it .... also to jog your memory a little more if you dont mind what would happen if i was to make a profit on the disposal? If you could explain that to me aswell that would be great.
Very much appreciated that last reply

Thank You!!!

Abbie

Monsoon

Abbie, profit on disposal of asset will be a CR in the P&L account.

What it means is that the amount paid to the business for the asset was more than the Net Book Value (original cost minus accumulated depreciation). Vice versa for a loss. A loss on disposal is a DR to the P&L.

Ryan's method of looking at it without the disposals account is a good one, I like it. Once you've got your head round it you will need to be able to do the T account though.

All the disposals account does is facilitate moving all the necessary elements and putting them in one place so you can calculate the profit/loss. So it moves the DR asset original cost in to the disposals account (cr asset, dr disposals), moves the depreciation (dr depn, cr disposals), provides the other half of the bank entry for sale proceeds (dr bank, cr disposals) and gives you a balancing figure for profit/loss.

crispy

Hello,

Try this for a very straightforawrd profit on dispoal, numbers are made up just make it easy to follow:

An Asset that cost £ 100 has accumulated depreciation of £ 60 and is sold for £ 50

You can see here there is a profit of disposal of £ 10 ie: Proceeds of 50 less NBV of 40 (100-60)

Journals can prepared in stages:

1. Remove Original Cost of Asset
Dr Disposals 100
Cr Asset at Cost 100

2. Remove Accumulated Depreciation
Dr Asset - Accumulated Depreciation 60
Cr Disposals 60

3. Deal with Proceeds
Dr Cash 50
Cr Disposals 50

Afetr completing above you will result in a disposals Account with a Credit balance of £ 10, representing your £ 10 Profit on disposal.

Gem7321

Although Ryan's way is perfect and the way I expect everyone does it in the 'real world', I think for AAT exams you have to use a disposals account, don't quote me on that though! So best to use crispys 3 stage journal.

Abbie28

thanks you all really helped i think i can get the hang of it now! im going to put it on a t account now thank you!!