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Disposal of MV

I have a client who has sold a motor vehicle, bought through his sole trader business.

In the MV account, after putting sale price through and depreciation reversed this leaves £4,000 as a debit. balance

In the acounts I am assuming that I will need to

Cr MV £4k to clear this balance out and Dr P & L £4k (but where woudl this go, would this be a Cr to MV Depreciation?) as this would reduce the total depreciation figure being put through overall for the year. 

As the Asset list I have shows the NBV and if i input the net of vat sale figure this also leaves £4k as a negative figure.

Under her HP loan, after paying off the amount requested, and payments made thoughout the term, there is a Debit balance of £2,000.  Which although i will check out, assume is an early repayment charge or interest upon paying it off early (3 years into a 6 year term),

Will I also need to

Cr HP loan £2,000 and Dr Loan Interest in the P & L £2k

Just haven't dealt with a disposal that has cleared something out completely before.

Any help would be appreciated.

Many Thanks



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14th Jun 2012 17:10

Basic accounting

You are making it more complicated than it need be.

When you sell a fixed asset, you should CR FA cost, DR FA Accumulated Depreciation and DR the balance (NBV) to P&L Disposal of FA account, then DR Bank and CR P&L Disposal account with the sale proceeds, resulting in a profit of £4,000 in your case.  Effectively, a profit on disposal does reduce the depreciation charge for the year in the accounts, but it is usual to show them separately and both are added back for tax purposes.

If your HP Loan account liability was just the capital amount of the outstanding loan, payments which put it into debit must effectively be interest and you should have posted them to DR P&L HP charges rather than to HP loan, so your proposed journal will correct the position.  The HP charges are tax deductible.

Thanks (1)