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https://i153.photobucket.com/albums/s239/kryssiekeh/pic1.jpg
https://i153.photobucket.com/albums/s239/kryssiekeh/pic2.jpgCan anyone please explain to me why is the trade-in allowance debited in the non-current assets account? o_o
Yes, instead of receiving cash, we have received an alternative benefit – a trade-in allowance which has been deducted from the cost price of the asset.
If you had a car which you could sell for $1,000 but instead you bought a new car with a real cost of $10,000, you could sell the old one, receive $1,000 and then pay $10,000 to buy the new car.
Or ….
You could say to the sales person selling the new car, “Will you sell me the new one for only $9,000 and I’ll give you my old car too?”
What is the cost of the new car – it’s $9,000 which you have paid in cash PLUS the $1,000 which you could have received if you had sold the car to a friend.
So the double entry to record a trade-in value is debit the new TNCA and credit the Disposals Account as though it were a cash proceeds of sale
OK?
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