Can you help me in recording the hammer drill which should be regarded as fixed assets as its is worth 299.99 (I mean purchase price was this). As it was used in construction site and broke up after 2month of use, how should I record it's disposal?do I need to depreciate it for 2months as it should be regarded as fixed assets and write the proceeds of disposal is zero as it is not suitable anymore to be used at work?What figures to use in P&L account and B/S account?I would be very grateful for the answer.
I'm assuming you've already recorded the purchase in such a way as it shows in fixed assets - which your question seems to suggest.
I would depreciate it for the two months, yes - partly just for the sake of showing the correct transactions, but mainly because the way I work means the depreciation would have been recorded automatically each month. Use 1/6 (or 2/12) of whatever a full year's depreciation would be.
Then, the disposal should be handled just the same as any other disposal of a fixed asset. That would normally be set of transactions as follows:
Credit the original cost of the disposed asset to the relevant 'cost of fixed assets' nominal ledger account, debit it to the 'disposal of fixed assets' account.
Debit the total depreciation on the item so far to the relevant aggregate depreciation account on your nominal ledger, and credit that amount to the 'disposal of fixed assets' account.
Normally, there would be a third step, which is when an asset is sold - the money received would be credited to the 'disposal of fixed assets' - with the net balance on that account showing a debit (the value was greater than the money received; a loss on the disposal) or a credit (the value was less than the money received; a profit on the disposal). However, in your case, there is no sale, so the result should just be a debit balance (the cost minus the two months depreciation).
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Vince M Hudd - Soft Rock Software
(I only came here looking for fellow apiarists...)
Thank you for such comprehensive information, VinceH. I am aware of ledger transactions. But can you confirm that I am thinking in right way regarding P&L account and B/S.
As fixed asset was assumed to be suitable for 2 years with initial cost £299.99 and was used for 2months only as broke down, the depreciation would be 299.99/2*2/12=24.99 As on Fixed Asset Disposal Account credit side I have depreciation 24.99, proceeds of disposal 0 (as it is not sale) and loss on disposal 275, I have to have debit entry on P/L account for depreciation 24.99 and loss on disposal 275. Am I right?And as fixed asset account for this asset and depreciation for this asset was closed due to disposal, I should assume that I do not need to record anything in balance sheet as there is no such asset- it does not exists anymore. I would be very grateful if you advise me whether I am thinking in right way.
For simplicity, unless you do monthly management accounts for the depreciation, there is no need to enter the any depreciation in the year of disposal.
I would be inclined to do a straight journal Dr Asset Disposal A/c and CR Asset (Plant & Machinery?).
If you have shown monthly depreciation then I would follow Vince's approach
......................, I have to have debit entry on P/L account for depreciation 24.99 and loss on disposal 275. Am I right?And as fixed asset account for this asset and depreciation for this asset was closed due to disposal, I should assume that I do not need to record anything in balance sheet as there is no such asset- it does not exists anymore. I would be very grateful if you advise me whether I am thinking in right way.
Yes, you're right on both counts. Loss of £275 and Depn £24.99 on the P&L and nothing on the balance sheet.
