Part-Exchange Disposal

Part-Exchange Disposal of Non-Current Assets: Hammer is to buy a new motor car which has list price of 9,000.

The new car is to replace an old car which cost $7,500 four years’ ago and has accumulated depreciation of $6,000 on it.

Hammer will pay the motor car dealer $7,000 for the new motor car and therefore the part exchange value is ($9,000-$7,000) $2,000.

Solution:

List Price 9,000.00
Cash Paid 7,000.00
Part Exchange Value 2,000.00

Straight line depreciation rate is 20%.

Year Initial Cost Depreciation Accumulated Depreciation Carrying Amount
0 $ 7,500.00 – – 7,500.00
1 $ 1,500.00 1,500.00 6,000.00
2 1,500.00 3,000.00 4,500.00
3 1,500.00 4,500.00 3,000.00
4 1,500.00 6,000.00 1,500.00

Part Exchange Value 2,000.00
(-) Carrying Value 1,500.00
Profit/(Loss) on disposal 500.00

Journal entry for Part Exchange Disposal:
Disposal a/c Dr. 7,500
Car a/c Cr. 7,500

Accumulated depreciation a/c Dr. 6,000 –
Disposal a/c Cr. 6,000

Disposal a/c Dr. 500
Profit on disposal a/c Cr. 500
(Recording the profit/(Loss) on disposal on the old car)

New Car a/c Dr. 9,000
Part exchange Disposal a/c Cr. 2,000
Cash a/c Cr. 7,000

Please answer me whether i am correct with these journal entries.