[Puiman]

Thanks. 🙂

[Puiman]

Thank you. 🙂

Yes, agree and all good now.

[Puiman]

Hello John,

I skipped that step of removing the asset from the accounting records. I started with the part-exchange allowance so to focus on what I was asking.

The old asset was part-exchanged at the value of £100 + VAT. The £100 is the net proceeds which will be contributed to the purchase cost of the net asset. Hence the double entry CR disposals £100, DR Asset at Cost £100. Also need to CR VAT £20 as VAT has been charged and will need to be handed over to HMRC. Since we are not selling it for cash, then we couldn’t be debiting cash with £120. We already have the DR £100 in the Asset at Cost account, where do we DR the remaining £20?

Hope you know what I meant. 🙂

[Puiman]

PS: I found your notes on opening/closing inventory. 🙂

Does that mean that when opening inventory first appears in the TB, it is DR entry (as an asset). Now we do the year end adjustments, and remove opening inventory as an asset and put it through as part of cost of sales?

[Puiman]

Ah that makes better sense. Why did they remove ETB from the syllabus?

I read your lectures on and off as although I am not directly doing an ACCA, I am doing a very similar course and it is all relevant. 🙂

Big thank you. You do great!!!

[Puiman]

Hello John,

Thank you for your reply. Although not my question, your reply is really interesting because I have seen opening inventory in TB which I have always found EXTREMELY confusing! The way I understand is that ALL balances in the TB should be closing balances.

However, I have seen examples where opening inventory shows on TB and then they put it as a DR Entry in the P&L columns of an ETB (DR entry since opening inventory is part of COGS).

Then the closing inventory is used as year-end adjustment, which is a CR entry in the P&L columns in the ETB (reducing COGS) and a DR entry in the SFP columns of an ETB.

[Puiman]

Thank you, John.

It feels odd because I needed to first calculate the remaining physical cash to pay which is £24.
I have not managed to use T accounts alone to arrive at the figure of £24.

As in my original question, we have CR disposals £100, CR VAT £20, DR Asset at Cost £100. Which account do we Debit the remaining £20?

I somehow got round it but it feels strange.

Maybe that’s just the way it is!

[Puiman]

Say, the old asset with part-exchange value of £100 + VAT is used to buy a new asset at £120 + VAT = £144. Does that mean the remaining physical cash to pay will be £144 – £120 = £24?

Am I correct for the overall double entry:

CR Disposal £100, DR Asset at Cost £100
CR Bank £20, DR Asset at Cost £20
CR Bank £4, DR VAT £4

Odd? Thank you for your help!

[Puiman]

Thanks, John. There was an exercise where they put both on the same line which somewhat confused me. I am good now. 🙂

[Puiman]

Thanks. I also found that it was not the best question in the world (it was taken from an exercise. I didn’t invent this question). I won’t worry too much about it. Thanks for your reply. It is reassuring.

[Author]

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