Disposal on Trial Balance

THALLWORTH

Hi,

I know this is probably a really simple question but i have thought about it far too much and completely confused myself.
I have a trial balance with a disposal figure of £450 on the credit side. Does this mean that an asset has been disposed of at a loss? Also, where would this then be recorded going forward? Would it be put on the p&l or the statement financial position?
Many Thanks in advance!

PeterC

Consider an example:

Asset = £10,000 at cost
Accumulated depreciation = £ £8,000 (Carrying amount = £2,000)
Asset sold for £2, 450 (ie. a PROFIT of £450)

Transactions are as follows:

Dr Disposal a/c £10,000
Cr Asset a/c £10,000

Dr Accumulated depreciation £8,000
Cr Disposal a/c £8,000

Dr Bank a/c £2,450
Cr Disposal a/c £2,450

The balance on the Disposal a/c is £450 Cr (8,000 + 2,450 - 10,000), as per your question
This represents the £450 profit

Put it in the P&L

Dr Disposal a/c £450
Cr P&L a/c £450

THALLWORTH

Thank you so much Peter. So as it is a CR on the trial balance this means the disposal made a profit?
For example if the 450 would have been on the DR side would this have meant a loss and therefore would be presented as a loss on the p&l?
The other question I have (sorry) is this trial balance I was given also has two closing inventorys on it - both on CR and DR, would you know why this is? It's something my tutor mentioned and he is currently off sick. Thank you again

PeterC

What you say about the 450 is correct.

Regarding the closing inventory, the Dr goes in the balance sheet (it's an asset) and the Cr goes in the P&L (in effect, it reduces the purchases to the amount which is actually in the goods sold)

It may help to consider what happens in the accounts.
Example: Opening inventory £100, closing inventory £90, Purchases £5,000
Cost of sales = 5,000 + 100 - 90 = £5,010

When the closing inventory is valued, the transaction is
Dr Inventory £90
Cr Cost of sales £90 (this goes in the P&L column on an extended trial balance)

We also need to remove the opening inventory from the Inventory a/c
Dr Cost of Sales £100
Cr Inventory £100 (leaving the inventory a/c with a balance of £90)

And when we close the Purchases a/c, we get
Dr Cost of Sales £5,000
Cr Purchases £5,000

So, in the Cost of Sales a/c we have a balance of £5,010 Dr (5,000+100-90)
as shown at the beginning of the example.

THALLWORTH

Thank you very much for your help :-)

THALLWORTH

Sorry Peter, me again. Im still going wrong somewhere as its not balancing. The trial balance also lists 'sundry payables' Im assuming this is sundry costs to be paid out, its a CR on the trial balance which is now making me think it may be sundries owed instead. Think im going to look at doing some studying on what actually happens in the accounts as it may help me have a better understanding when it comes to the next parts! Thanks again and sorry for the million questions!

PeterC

I would interpret this the same as you. Both your suggestions seem the same to me; "sundry costs to be paid out" and "sundries owed " both sound like liabilities (Cr balances) on the Statement of Financial Position.

THALLWORTH

Sorry for the delay peter i have been ill. Thank you so much for all your help i finally understand it now :-)

PeterC

You're welcome