TRADE IN

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hi,

Can anyone help me?! I'm struggling on how to deal with a trade in on an asset when I'm buying a new asset and a creditor is involved. Can anyone advise me on what the correct entries should be? Grateful for any help!

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:TRADE IN

    Treat it as two seperate transactions.

    1. Removal of old item from Fixed Asset

    CR Full cost of old item
    DR Disposals account

    DR Accumulated depreciation of item
    CR Disposal account

    (The difference between these two is the same as your NBV for the asset)

    Then
    2. Introduction of new Asset

    Assuming you have an invoice from the creditor

    DR Cost of new item - This is the full amount of the new vehicle not the amount after discount)
    DR Vat amount
    DR Expenses - ie tax

    CR Creditors - Amount of Invoice i.e. the amount you are going to pay the creditor
    CR Disposal account - trade in allowed.

    (This should cover everything on the suppler invoice and the DR and CR totaled should agree)

    3. If you total the DR & cr for parts 1 & 2 there should be a difference. This is the loss or profit on sale of asset in your disposal account that you will be transfering to your TB.


    NOTE:
    - I am assuming that there is no depreciation in the year of sale.
    - Don't forget to depreciate your new asset if there is depreciation in year of purchase.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:TRADE IN

    That's great, thanks very much for your help. I was getting confused thinking I had to DR the amount after discount to the asset account and then of course nothing would balance! Thanks again!

    Catherine

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