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Hi,
The ACCA F7 Paper: Exercise 6-Q4
I looked at the answer on Pg 241 but I’m slightly confused on the working for the plant disposal journal entry, I really appreciate if anyone could please explain the figure.
‘On 1 October 2008 an item of plant was disposed of for $2.5 million cash. The proceeds have been treated as sales revenue by Candel. The plant is still included in the above trial balance figures at its cost of $8 million and accumulated depreciation of $4 million (to the date of disposal).’
Thanks.
The double entry that Candel has put through is:
Dr Cash $2.5 million
Cr Revenue $2.5 millionand that is incorrect – it should not be classed as revenue
So, reverse that bad entry by:
Dr Revenue $2.5 million
Cr Cash $2.5 millionand now we are back to square one with a clean start and we can put through the correct entries
The plant has a carrying value of $4 million (cost account $8 million and accumulated depreciation account $4 million) and we sell it for $2.5 million
So remove the cost from the cost account and the accumulated depreciation from the accumulated depreciation account and double enter those two values to a disposal account
Dr Disposals $8 million
Dr Accumulated depreciation $4 million
Cr Plant $8 million
Cr Disposals $4 millionNow the Disposals account shows the net carrying value of the plant that we have sold
Now record the cash proceeds
Dr Cash $2.5 million
Cr Disposals $2.5 millionBalance off the Disposals account and double enter the balance to the statement of profit or loss / Loss on disposal of TNCA
Dr Statement of profit or loss / Loss on disposal of TNCA $1.5 million
Cr Disposals $1.5 millionIs that better?
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