Confused about fixed asset disposal journal entries

Smorgasboardie

Hi, I'm studying for a pg dip in accounting at the moment.

I learning about fixed asset disposal and am stuck on a point I can't figure out.

So, in this example, the asset cost 1000, the agg dep is 657 and asset is sold for 400, making the profit 57.

The journal entries are:

Db Prov. for Dep. 657
Cr Asset Disposals Account 657


Db Asset Disposals Account 1000
Cr Plant and Machinery 1000


Db Plant and Machinery 57
Cr P/L Account 57


The first two make sense to me but the last doesn't at all. I can't figure why you would debit the plant and machinery account in the last one, as it's not plant and machinery that the business owns anymore. Especially as when they then show the ledger accounts in the example, the 57 doesn't appear in the Plant and Machinery account, it's closed off after the 1000 is moved out of it. Thought it might be a misprint, but solutions to some of the questions at the end of the chapter show the same thing.

Help!

Thanks.

Alan Shore

Ya don't know what the last one is about.

The €57 should be the balance on the p/l on disposal.

Smorgasboardie

Alan Shore wrote: »

Ya don't know what the last one is about.

The €57 should be the balance on the p/l on disposal.

Hmmm. Yeah, it didn't make sense to me. But I'm so new to this that I didn't know if it was just me being still quite misinformed. Do you think it's a mistake? Textbooks often have plenty of them, I find. I've spend hours trying to wrap my around it to no avail. That usually doesn't happen, usually the penny drops once I've considered something enough.

The textbook is 'Introduction to Financial Accouting' 7th Ed. Ward and Thomas.

George Huxley 1983

Smorgasboardie wrote: »

Hmmm. Yeah, it didn't make sense to me. Do you think it's a mistake? Textbooks often have plenty of them, I find.

The correct final journal is to Dr the disposal account and credit the p and l

Alan Shore

Are you sure that the last journal is not from the Asset Disposal account which may be a balance sheet account and would need to be transferred to the P&L.

Smartguy

Dr bank 400
Cr asset disposal 343
Cr p&l 57

Smorgasboardie

Alan Shore wrote: »

Are you sure that the last journal is not from the Asset Disposal account which may be a balance sheet account and would need to be transferred to the P&L.

No, it's written as:

Plant and Machinery Dr 57
To: P/L a/c Cr 57
Being the profit on sale of plant and machinery to P/L a/c

And like I said, when the ledger entries are shown, that 57 doesn't appear in the Plant and Machinery account. So the ledger entries are probably right, as they show the 57 on the debit side of the asset disposals a/c.

And the solutions to problems at the end of the chapter are similar!

Very confusing. Well, I suppose if it's wrong, it's good that I'm picking up on this sort of thing rather than blindly following it.

sodabread

First two are correct.

My third entry would be:

Dr Bank 400
Cr Asset Disposal a/c 400

The balance b/d on the asset disposal a/c will now be a CR of 53

My fourth entry would be:

Dr Asset Disposal a/c 53
CR I/S 53

ASOT2012

Smorgasboardie wrote: »

No, it's written as:



And like, I said, when the ledger entries are shown, that 57 doesn't appear in the Plant and Machinery account. So the ledger entries are probably right, as they show the 57 on the debit side of the asset disposals a/c.

The mistake in the textbook is that the Plant and Machinery account should have been named the Plant and Machinery disposal account. If you look at it that way it might make it easier to understand. But your right it looks confusing as it appears that they are debiting the P&M cost account with the 57.

So when you add the word disposal after it then all the journal entries are correct. Then the profit of 57 is transferred to the P&L as a credit.

Smorgasboardie

This thread has been so helpful, thanks so much to you all for replying, you've confirmed what I was thinking but was unsure about because I'm a newb. :pac:

Cheers!