Well Howdy!
It's been a while since I 'blogged' but, like Freddie Kruger, I'm back!
I though in this article, I would briefly look at Disposal of non-current assets and the T-accounting needed to calculate profit.
Have a look at the Slideshow below then we'll work through an example:
So, Let's say we have a car we paid £25,000 for and over the past couple of years, we've accumulated £12,000 of depreciation against it. Today we're going to sell it for £9,000. Have we made a profit?
Step
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1
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Open a Disposals T-account
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2
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Dispose of asset
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Debit Disposals £25,000
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Credit Asset £25000
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3
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Transfer accumulated depreciation to
Disposals account
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Debit Disposals £12,000
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Credit Accumulated
depreciation £12,000
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4
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Record sale proceeds (if any)
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Debit Bank £9,000
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Credit Disposals £9,000
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The Disposals T-account will look like this:
We can follow a similar process for Part-exchange.
Let's use similar figures to the last example but, instead of selling the car, we use it a part payment for a new vehicle.
We were given a part exchange allowance of £11,000 against the purchase of a new car which cost £30,000.
Step
|
|||
1
|
Open a Disposals T-account
|
||
2
|
Dispose of asset
|
Debit Disposals £25,000
|
Credit Asset £25,000
|
3
|
Transfer accumulated depreciation to
Disposals account
|
Debit Disposals £12,000
|
Credit Accumulated
depreciation £12,000
|
4
|
Record Part exchange
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Debit Asset with part exchange
allowance £11,000
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Credit Disposals with part exchange
allowance £11,000
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Debit Asset with amount paid
£19,000
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Credit Bank/Loan with amount
paid
£19,000
|
||
The T-account for Disposals look like this:
Remember, when balancing off the T-account, if the debits outweigh the credits, you have a loss on disposal, whilst credits exceeding debits mean you have a profit on disposal.
I some tasks, you may have to calculate the accumulated depreciation - remember to RTFQ (Read The Full Question). as it's so common for students to miss key information.
I hope this little article helps.
Until next time
