Summary
Summary AAT Part-Exchange Level 3 (Depreciation Topic) Double-Entry (Step-by-step)
- Example of an AAT part-exchange double entry question walkthrough
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Part ExchangeYou are working on the accounts for a business that is registered for VAT
The business has part exchanged a machine during the year but no entries for this transaction have been made
The original cost of the machine that was part exchanged was for £4,200 plus VAT (VAT has been reclaimed)
The accumulated depreciation on the machine that was part exchanged was £3,150
A part-exchange allowance of £1,200 plus VAT (which can be reclaimed) was given against the new machine
The £4,800, plus VAT, balance owing for the new machine was paid from the bank during the year. The VAT can be reclaimed
A full year’s depreciation charge needs to be made on the new machine on a 25% straight line basis
It is assumed that there will be no residual value. No other depreciation charges need to be made. You will need to make entries
to account for:
- The disposal of the old machine
- The purchase of the new machine
- The depreciation on the new machine
1. We can see the bal b/d of £4,200 in the machinery at cost account which is an asset account so the bal
b/d has been debited from when the old machine was brought
, 2. Because we are disposing of this, we need to get rid of it in the account (so credit the machinery at cost
account to cancel out the debit) and debit the disposals account
3. We can see the bal b/d in the accumulated depreciation account as a credit/liability because it is money
that we will not get back. The question states we need to charge depreciation for the new machine so
£4,800 (for the new machine) + £1,200 (the part exchange allowance for the new machine) = £6,000*25%
= £1,500. This is credited to the accumulated depreciation account and debited to the depreciation charge
account as an expense (debit)
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