Can anyone give me some help on depreciation of fixed assets?!!

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:32AM in AAT student discussion
Hi,

I'm hoping someone might be able to help! I'm doing an assignment on depreciation of fixed assets. I have a fixed asset register and the company have just bought a new car, receiving £5k trade-in allowance for the old company car. My question is, which figure do I enter into the fixed asset register and use to calculate depreciation on - is it the figure discounted after trade-in allowance has been taken off, or the original purchase price of the car. I thought it would be the trade-in price but I've entered the trade-in allowance into the DR side of the motor vehicles asset account, so surely I need to take this cost into consideration when calculating the amount I need to depreciate on? I'm confused!!!

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Can anyone give me some help on depreciation of fixed assets?!!

    Hi Cathy,

    If you didn't have the old car, how much would the new car have cost you??...... The full value.... so that is the value of the cost of the new car which you should be detailing in your fixed asset register, and calculating depreciation on.

    The depreciation on the new car per month will obviously be a higher value than it would have been if you had used the reduced cost after trade in value, but never mind this, as you're concentrating on detailing the fixed asset at cost correctly in the books.

    the entries will be:

    Dr Fixed asset

    a)cash value paid
    b)trade in value (jnl entry)



    Cr Bank
    a) cash value paid

    Cr Disposal a/c
    b) trade in value (jnl entry)


    haven't gone into depth on this, but
    hope this helps?


    you've already done the entries re the disposal of the old asset, right??
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Can anyone give me some help on depreciation of fixed assets?!!

    I always found it useful to consider part-exchange as two seperate transactions - ie a disposal and an acquisition. The only diffence with p/e is that you're selling to and buying from the same business. The only thing that's really affected is the amount you end up owing.

    All other transactions are unnaffected by the fact it's p/e and as Ruby said you depreciate on the full amount. I go into a bit more detail here
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Can anyone give me some help on depreciation of fixed assets?!!

    Practically speaking, at this stage I would say it depends how the trade in transaction was laid out on paper.

    If the trade in value is on the invoice for the new car then you can enter the total value for the asset.

    If the discount isn't on the invoice then I don't see how you can account for any value that dosn't have the paperwork. Keep the trade in in sales/ disposals/ whatever.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Can anyone give me some help on depreciation of fixed assets?!!

    Great, thanks for your help all! Yeah, I think I've finally got it sussed in my mind now!!

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