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So....
You have identified that during 2015 you could dispose of equipment with a current book value of £10.
You estimate that you could sell for £2. - basically scrap value.
How do you handle the provision for disposal and what £value? Balance sheet?
How do you handle the proceeds?
Trying to understand impact on balance sheet and P&L...
Thanks!
Do you really mean £10, or more?
As if it's £10 (or £8 or £2) I would suggest it's immaterial and therefore they'll just 'write it off'.
And when does it become £0 on the books, if it's this year then just ignore it.
B r,
Just using £10 as an example to make calcs easy.
If could be book value of £10mm with scrap value of £200k.
Ok, if that's the case - ask your Accountant.
That's what I would do. 🙂
Option 1. Make the provision now for £8, sell for £2 and then write off the £2
Option 2. Sell for £2, write off the £10
The provision will go against BS and P&L offset.
(IANAA but I do a fair bit of this stuff though I'd get it done properly if the values are more like your second example - there could be tax, etc implications)
No matter what you have previously depreciated an asset to on the balance sheet, the act of disposal (i.e. scrapping or binning) will render the value zero, whilst selling will render whatever value one actually achieves and sometimes this is actually higher than the balance sheet's depreciated value, so tax will be due on the 'profit'.
I assume you didn't mean provision. To record the disposal (scrap, sold or taken by owner) of an asset from the company. You will need to credit the cost of the asset on the balance sheet(debit your sale of asset P&L account), debit the depreciation (credit the sale of asset P&L account). This removes it from asset from the balance sheet.
Any monies received for the asset would then be credited to the sale of asset account and debited to the bank/cash/directors account.
If the balance in the sale of assets is a credit then you made money on the asset otherwise a debit is a loss.
This only takes care of the accounts. You would also need to calculate the effect on capital allowances for the tax calculation and if a balancing charge is required.
If you don't follow the above you really need to be using an accountant.