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

janwal

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

uknitty

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

Thanks for that makes more sense now