How do you know what accounts you need to draw up for disposal of non-current assets?

AndraR
AndraR Registered Posts: 1
Sometimes it gets confusing when you get tasks that ask you to draw up the accounts involved in a disposal of non-current assets. Do you have any tips for the thought process for finding out what accounts are involved in any case, for a disposal? Especially when part exchange is envolved. Or you need to learn them by heart with no logical explanation?

Comments

  • Pian32
    Pian32 Registered Posts: 474 Dedicated contributor 🦉
    In a disposal of a NC Asset you will always pull up the original cost, accumulated depreciation (including any in that year if done in year of disposal) and the amount received for the asset.

    Disposal
    Debit Credit
    Original Cost Accumulated Depreciation
    Amount received

    If the balancing figure is a debit you've made a profit if it's a credit a loss.

    For part exchange you'll have a new asset with original cost equal to the amount received from disposal (not the profit/loss) + amount paid (finance or bank)

    New Asset

    Debit
    Amount Received from previous asset
    Amount paid on top

    I hope this helps. The accounts above are the one sided transaction for that particular account.
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Passed Dec 2020
    F6- Passed Sep 2020
    F7- Passed June 2021
    F8 - Passed Sep 2021
    F9 - Passed June 2021

    SBL -
    SBR - Passed Mar 22
    ATX - Passed Dec 21
    APM - Passed June 22
  • PeterC
    PeterC Registered, Tutor Posts: 245 Dedicated contributor 🦉
    I think there is a logical explanation

    You need
    a DISPOSAL ACCOUNT to bring everything together (a working document)

    and the accounts affected by the disposal of (say) depreciated equipment, for cash, are:
    EQUIPMENT AT COST
    ACCUMULATED DEPRECIATION OF EQUIPMENT
    CASH at Bank

    and any profit/loss will go to the INCOME STATEMENT

    For more details, see:
    https://drive.google.com/file/d/19hBzAnltn4OzV-fXaU2uupoSDEWSjiWQ/view?usp=sharing
  • Pian32
    Pian32 Registered Posts: 474 Dedicated contributor 🦉
    Sorry forgot about the formatting. I did show what Peter mentioned in columns but I forgot that extra spaces get deleted after submission.
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Passed Dec 2020
    F6- Passed Sep 2020
    F7- Passed June 2021
    F8 - Passed Sep 2021
    F9 - Passed June 2021

    SBL -
    SBR - Passed Mar 22
    ATX - Passed Dec 21
    APM - Passed June 22
  • PeterC
    PeterC Registered, Tutor Posts: 245 Dedicated contributor 🦉
    Sorry, Pian32, I wasn't disputing your explanation. I could see what you had done but, as you suggest, the formatting is a pain.
  • MarkA
    MarkA Registered Posts: 18
    Would it be possible to assist my understanding?

    I think knowing the DEAD CLIC (and CEAD DLIC as I tend to call the opposite) would help my though process as I too struggle knowing whic accounts to use. In DEAD CLIC termsWhich is each component part and which action?

    Step 1.
    Dr Accumulated depreciation (as this was a credit balance)
    DEAD CLIC Is this a Capital Item (not Liability and not Income? & DR increases the Asset?
    Cr Disposal account (again, so we can work out the profit or loss on disposal)
    DEAD CLIC CR to increase the Asset in the disposal account?

    Step 2.
    Dr Accumulated depreciation (as this was a credit balance)
    Was this also Capital in DEAD CLIC?
    Cr Disposal account (again, so we can work out the profit or loss on disposal)
    DEAD CLIC CR increase in Asset in Disposal Account?

    Step 3.
    Dr Cash (as we are receiving some money for disposing of it)
    DEAD CLIC DR Increase Asset?
    Cr Disposal account (to compare against the NBV already posted there in steps 1 and 2)
    DEADCLIC Terms CR Increase Disposal Account capital?
  • Pian32
    Pian32 Registered Posts: 474 Dedicated contributor 🦉
    Hi Mark

    I think you accidentally copied the same step twice I'll list what is going on in terms of DEAD CLIC

    Original cost account - Asset account - In writing off amount will be credited as the asset is reduced to 0. The other entry is a debit in the disposal

    Accumulated depreciation - (contra) Asset account - This is a little unusual on the basic Dead CLIC but is effectively a negative asset account as it reduces the value of assets - In writing off you Debit the amount to increase the asset to 0. The other entry is a credit in the disposal.

    Cash - Asset account - Debit cash as it's received. - The other entry is a credit in the disposal account.

    The disposal account itself is effectively a workings account for the gain/loss on disposal as it should be balanced when completed.

    I hope this helps.
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Passed Dec 2020
    F6- Passed Sep 2020
    F7- Passed June 2021
    F8 - Passed Sep 2021
    F9 - Passed June 2021

    SBL -
    SBR - Passed Mar 22
    ATX - Passed Dec 21
    APM - Passed June 22
  • MarkA
    MarkA Registered Posts: 18
    edited March 2021
    Thanks very much that helps a lot, and I get the reducing to now you've explained it.

    Many thanks
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