Preparing basic financial statements

The draft statement of financial position shown below has been prepared for Shuswap, a limited liability company, as at 31 December 20X4:

Assets
Non-current assets
Cost Accumulated depreciation Carrying value
$’000 $’000 $’000
Land and buildings 9,000 1,000 8,000
Plant and equipment 21,000 9,000 12,000
30,000 10,000 20,000
Current assets
Inventories 3,000
Receivables 2,600
Cash at bank 1,900
Total assets 27,500

Equity and liabilities
Equity
Issued share capital (ordinary shares of 50c each) 6,000
Retained earnings 12,400
Non-current liabilities
Loan notes (redeemable 20Y0) 2,000
Current liabilities
Trade payables 2,100
22,500
Suspense account 5,000
27,500

Task 2
The suspense account is made up of two items:
(a) The proceeds of issue of 4,000,000 50c shares at $1.10 per share, credited to the suspense account from the cash book.
(b) The balance of the account is the proceeds of sale of some plant on 1 January 20X4 with a carrying amount at the date of sale of $700,000 and which had originally cost $1,400,000. No other
accounting entries have yet been made for the disposal apart from the cash book entry for the receipt of the proceeds. Depreciation on plant has been charged at 25% (straight line basis) in preparing the draft statement of financial position without allowing for the sale. The depreciation for the year relating to the plant sold should be adjusted for in full.

Task 3
A year end journal to clear the suspense account is given below.
Prepare the double entry by selecting the correct option for each row. (Use the information given under Task 2 to help you.)

DEBIT CREDIT Neither DEBIT nor CREDIT

Issued share capital ? ? ?
Share premium ? ? ?
Cash ? ? ?
Plant and equipment – cost ? ? ?
Plant and equipment – disposal account ? ? ?
Suspense account ? ? ?

Hello Tutor,
I have a question relating to Task 3: as far as I understand from Task 2b that the company has not made any entries for the disposal, apart from the cash book entry, and they said that the depreciation also needs adjusting. That’s why I assumed that plant and equipment – cost should be credited according to the normal entries: DR disposal account CR asset – cost, DR depreciation CR disposal account, DR cash CR disposal account.

1. But I do not understand why according to the solution we neither debit nor credit PPE – Cost.
2. Besides, Plant and equipment – disposal account is credited and,
3. Suspense account is debitted as per solution.

Can you please enlight me in 3 questions? Thank you!