When reporting a profit from the sale of a fixed asset should I record it under the SAGE code 4200 (which is what SAGE seems to suggest) or should it be recorded in the p&l section i.e. 8005?
Basically what I've done is:
DR Bank with total amount rec'd (1200) CR Fixed Asset account with cost price of asset (0030) DR Depreciation of Fixed Asset account (0031)
then DR Sale of Assets with the cost price of asset (4200) CR Sale of Assets with the depreciation (4200) CR Sale of Assets with the Net amount rec'd (4200) CR Sales Tax Control Account with VAT (2200)
So in the end the Sale of Assets code (4200) shows the profit. However should I then transfer the value here (currently a CR) to a new nominal code in the p&l adjustments section? Does it make much difference as the sale of assets (4200) and a new p&l (8005) all show up on the p&l account???
When reporting a profit from the sale of a fixed asset should I record it under the SAGE code 4200 (which is what SAGE seems to suggest) or should it be recorded in the p&l section i.e. 8005?
Basically what I've done is:
DR Bank with total amount rec'd (1200) CR Fixed Asset account with cost price of asset (0030) DR Depreciation of Fixed Asset account (0031)
then DR Sale of Assets with the cost price of asset (4200) CR Sale of Assets with the depreciation (4200) CR Sale of Assets with the Net amount rec'd (4200) CR Sales Tax Control Account with VAT (2200)
So in the end the Sale of Assets code (4200) shows the profit. However should I then transfer the value here (currently a CR) to a new nominal code in the p&l adjustments section? Does it make much difference as the sale of assets (4200) and a new p&l (8005) all show up on the p&l account???
Thanks in advance.
Hi Tangfastic,
The P&L should record the profit or loss on sale. I think it would be appropriate to use the 4200 account for this if the result could validly be regarded as income. For example, if you sold land (a non-depreciating asset) for more than you bought it for then the profit on sale would sit quite comfortably in 4200 in the Sales Income section. However, when depreciated assets are sold it is often the case that the profit or loss on disposal is more akin to an adjustment of the accumulated depreciation charges that have passed through the P&L.
Take the following fictitious example. I'm splitting your entries into two balanced parts: (1) the sales proceeds; and, (2) the carrying value disposed of.
Dr Bank (1200) £120, Cr Sale of Assets (4200) £100, Cr Sales Tax Control Account (2200) £20
Dr Sale of Assets (4200) £80, Dr Accumulated Depreciation (0031) £920, Cr Fixed Asset Cost (0030) £1,000
The net Cr of £20 in the Sale of Assets (4200) account would arguably be better presented in a "Profit / Loss on disposal of depreciable fixed assets" section, say 8005 to 8099, just below depreciation in the chart of accounts. A journal to Dr Sale of Assets (4200) £20, Cr Profit / Loss on disposal of depreciable fixed assets (8005) £20 would better reflect the "adjustment to previous depreciation charges" nature of the "profit".
At the end of the day it is unlikely to get anyone terribly excited as to the rights or wrongs, but I'd have thought that leaving it in 4200 would be the exception rather than the rule. As you say, both are in the P&L, the odds is the difference.
Thanks Ian and John! I reckon I sometimes over think things and my brain ends up in a bit of a muddle. It's a really interesting point about adjusting for an over provision for depreciation.
