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How do I bookkeep for this car disposal?

Inherited some old accounts and I cannot make sense of this lease

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A client has left me with a clean-up job on their accounts and as part of it, I have to handle the peculiar disposal of the company car they had on a finance lease. However the entries in the bank and what I see just don't quite make sense to me.

TB before disposal:

Asset: Car £17,000 (NBV)

Liability: £10,000 (outstanding finance costs, their 'final payment')

The client then tells me they were 'raising finance' and sold the car to another business, but then loaned the money to said business. The business essentially inherited the car and the revised finance costs, plus benefitted from the loan. I then see this in the bank:

Receipt: £15,000 (financing co)

Payment: £15,000 (to another company)

At this point, the car is no longer owned by my client (verified by log book), nor are they obliged to settle the finance costs of £10,000. The £15,000, however, is essentially 'loaned' to the other company though.

Ignoring the loan to the other company - which I'm treating as an other debtor - It doesn't make sense if I flush everything through to the P&L as it would show a rather bizarre £22,000 gain on disposal. Is that right? And from a tax perspective, the £15k receipt is the only taxable amount?

Any thoughts? Am I missing a trick? Many thanks.

 

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By dfens
19th May 2019 18:30

EDIT: I had a feeling I was doing something incredibly daft:

I worked it through and got this:

DR Bank £15k
CR Disposal proceeds £15k

CR NBV £17k
DR Creditor £10k
DR Disposal proceeds £7k

Gain = £8k (much more reasonable) ... been a long day! (although if anyone feels this is wrong do let me know ...)

Thanks (0)
19th May 2019 18:46

Was the transfer sanctioned by the finance company? Remember that neither the original nor the transferee company owns the asset.

But your numbers look right - company 1 received proceeds of £25k (£15k cash + £10k assumption of liability) for an asset with a value of £17k - difference £8k.

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By dfens
to Wilson Philips
19th May 2019 19:02

Thanks for the check Wilson, yep I believe it was sanctioned.

Thanks for this - looking at it your way it makes sense!

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