AP1 Depreciation...... help!!!

janwal
janwal Experienced MentorRegistered Posts: 1,189
Hi

Wonder if someone can help with a question set we have been given:

We have to draw up the T accounts with the follow info given:

EQUIPMENT BALANCE £32000
DISPOSED OF £12000
ACCUMULATED DEPRECIATION £8500
BANK RECEIVED £2000

I just don't seem to be able to get my head round it

Thanks

Jan

Comments

  • uknitty
    uknitty Experienced Mentor Registered Posts: 591
    You need to group everything together in a fixed asset disposal account.

    First the value of the Fixed Asset at cost from the Fixed Asset Account

    DR Fixed Assets Disposal
    CR Fixed Assets

    Next the Accumulated Depreciation

    DR Accumulated Depreciation
    CR Fixed Asset Disposal

    Finally the cash recieved from the sale

    Dr Bank
    Cr Fixed Assets Disposal

    Now we have grouped everything together, on the debit side the Fixed assets disposal account you should have the value of the item at cost = 12000

    On the credit side you will have the total of the depreciation and the cash recieved from the sale 8500 +2000 = 10,500

    To make the account balance you need to record the profit or loss on the sale. In this case we have recieved £1500 less than we expected, so this is recorded as a "loss on disposal of fixed asset" on the credit side of the disposals account. The double entry for this loss is Dr Profit & Loss. The journal would be

    Dr Profit & Loss
    Cr Fixed Assets Disposal

    The Dr entry recorded in the P&L account will be shown as a loss (an expense) in the statement of comprehensive income.
  • janwal
    janwal Experienced Mentor Registered Posts: 1,189
    Thanks for that makes more sense now
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