Section 2, journal entries, (a) June 2005 exam!

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
I am uncertain about why I use the nbv of the equipment for the disposals account and not the cost of £2000 in the disposal account. i.e.

Dr accumulated depreciation 976
Dr disposals (2000) 1024
Cr equipment 2000
my answer is in brackets and the examiners is next to it.

Is it because there are no proceeds and therefore the nbv figure is used, also it is lower than the cost?

Would someone confirm or point me in the right direction as I am worrying about this.

Thanks

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Section 2, journal entries, (a) June 2005 exam!

    Hi Georgina

    When disposing of a fixed asset you have to remove the NBV out of the accounts completely. This is done by crediting the original cost out of the books and debiting the total depreciation charge (thereby reversing the entire double entry which originally took place). For example

    Computer bought on 1 January 1990 for £800
    Total depreciation to 31 December 1995 £400
    Net Book value at 31 December 1995 = £400
    Sales proceeds at 31 December 1995 = £200

    To remove the computer out of the books you would have to credit cost of computers by £800, debit depreciation by £400, credit disposals account by £200 resulting in a loss of £200.

    The above entries will remove the fixed assets completely from the books of the company. Hope this helps.

    Steve
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Section 2, journal entries, (a) June 2005 exam!

    Hello Georgina

    I will try to explain how disposal accounts work......

    The entries would be as follows;

    Equipment cost (asset) Credit £2000
    Disposal account Debit £2000
    You always take the full amount (cost) of the asset out of the asset account by Crediting the appropriate account and Debiting the disposal account.

    Accumulated Depreciated Debit £976
    Disposal Account Credit £976
    The difference between £2000 cost and £1024NBV is the amount the asset has been depreciated; £2000-£1024=£976

    If you sold the asset and received monies then you would
    Bank Debit _______
    Disposal Account Credit________

    As no funds were received in this case due to the asset being scrapped, you would balance the Disposal Account, as follows;

    Equip Cost Debit £2000
    Acc Depreciation Credit £ 976
    Loss on Disposal Credit £1024 Charged to P&L

    When doing journals, you do not need to include the Disposal account if you can remember the journal entries for the other accounts without using one. Most people find it easier to use it though.

    Hope this helps... Good luck

    Sinders

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Section 2, journal entries, (a) June 2005 exam!

    Thanks Sinders, debiting the p&l account with the difference makes sense
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Section 2, journal entries, (a) June 2005 exam!

    Hi Sinders

    I think it is Dr Equipment-accumulated dep. 976
    Dr P&L -disposals 1024
    Cr Equipment at cost 2000

    thanks, what you wrote made sense.
    I'm not sure why the answer states disposals at 1024 though. Although I think you mentioned that a disposals account can be used. The balance carried down is 1024 which is debited to the p&l account.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Section 2, journal entries, (a) June 2005 exam!

    Hi Georgina

    Yes you are right with your entries which would appear in the indv accounts, i.e. Equip, Acc Dep etc.......... Although the the other side of the entries would go into the Disposal account (every Debit as a Credit). You then balance of the Disposal account with a Debit or a Credit entry, being the Loss or Profit on disposal.

    Sinders
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Section 2, journal entries, (a) June 2005 exam!

    Hi Georgina

    Yes you are right with your entries which would appear in the indv accounts, i.e. Equip, Acc Dep etc.......... Although the the other side of the entries would go into the Disposal account (every Debit as a Credit). You then balance of the Disposal account with a Debit or a Credit entry, being the Loss or Profit on disposal.

    Sinders
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Section 2, journal entries, (a) June 2005 exam!

    Hi Georgina

    Yes you are right with your entries which would appear in the indv accounts, i.e. Equip, Acc Dep etc.......... Although the the other side of the entries would go into the Disposal account (every Debit as a Credit). You then balance of the Disposal account with a Debit or a Credit entry, being the Loss or Profit on disposal.

    Sinders
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Section 2, journal entries, (a) June 2005 exam!

    the answer paper only has the entries for the disposal account- which was rather disconcerting. I originally thought that the double entries would be included.

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