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A company intends to purchase a motor vehicle with a list price of $24,400. The dealer offers a part exchange allowance and the balance of $15,000 is to be paid in cash. The old motor vehicle to be used in part exchange originally cost 20,600 USD and has accumulated depreciation to date of $12000.
How would the part exchange allowance be recorded by the company ?
DR Motor Vehicle $9400 CR Disposals $9400
DR Cash $15000 CR Disposals $15000
DR Disposals $15000 CR Cash $ 15000
DR Cash $9400 CR Disposals $9400Please Solve this question I am very much confused Sir.
Many thanksWhy are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – they have answers and workings 🙂
When the cash is paid we Credit Cash and Debit Motor Vehicles with $15,000.
For the part exchange allowance, we Debit Motor Vehicles and Credit Disposals with $9,400.
This brings the balance on the motor vehicles account to $24,400 (which is the correct total cost).
The $9,400 on the disposals account is effectively the sale proceeds.
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