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- Member PM.Dip
- Practice Licence
- 39 posts
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Hi me again! 
I am preparing clients year end schedules and TB and on reviewing the fixed asset schedule we have discovered several assets that continue to be depreciated despite being sold/scrapped in previous years. Some of these assets were sold as far back as 2005, 2006, 2008 and 2009. Based on current NBV of the assets sold this amounts to a profit on sale in excess of £34k.
How do I deal with this disposal when they clearly were not sold in the current year. Do I calculate the profit on disposal using the accumulated depreciation at date of sale and recognise the profit in the current year?
I can only assume that the proceeds of sale of these assets were treated as trading income in previous years. How does this affect the treatment of these disposals now. As income will have been recognised in the P&L albeit not as profit on disposal of fixed assets, would it be incorrect to state the profit on disposal now? Should they be written off at a nil value?
I have asked the previous accountant for data backups but he has stated he does not have any and now he is not replying to my emails.My client has not yet appointed an accountant for 2010-2011 but hopes to do so soon - and so do I :)
Any advice will be much appreciated.
Kind regards
Angie
PS An after thought - could I deduct the proceeds of sale from current year turnover then post the profit on sale of disposals having calculated it using accumulated depreciation at date of sale. Although this will disort current year results the overall profit/loss will reflect the correct position?
Edited at 08 Oct 2011 08:02 PM GMT
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Hi,
Oh dear!
I am not surprise the accountant is not replying to your e-mails!!!
Hope you get help on this...thanks for sharing!
Wish you the very best phew!
Nathaliexxx
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- Member PM.Dip
- Practice Licence
- 39 posts
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Hi Nathalie
Def - oh dear! I'm confused as to why these assets have continued to be depreciated years after disposal as my client informed me that they sat down with the previous accountant and reviewed the fixed asset schedules every year. This new client is definitely giving me food for thought. I even dreamt about it last night - or maybe it was a nightmare LOL.
Fingers crossed someone can point me in the right direction.
Take care
Angie xx
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Hi Angie,
I like your question WHY those asset were being depreciated knowing very well they were no longer part of company asset?
The accountant knew, in my opinion "what he was doing". It is a mess/mistake. It is hard to believe it is a "honest mistake" from an accountant! Should you move on providing the service to this client, you will need to correct this and seat with your client and eventually explain what happened. Accounting rules are clear. Those assets no longer belonging to the company=disposal, they should not have been depreciated during all these years, should have been taken out company books and eventually company should have paid tax on profit resulting from the disposal lol
Again all the best Angie, take a deep breath!
Keep us posted
Nathaliexxx
Edited at 23 Nov 2011 08:03 PM GMT
Edited at 26 Nov 2011 09:47 AM GMT
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Hi Nathalie.
I think your reaction is somewhat excessive - none of us know the full circumstances of the situation and to suggest that a particular accountant has not made an honest mistake is an extremely dangerous comment to make.
As you will have seen from the forum postings, no doubt, it is often the case that answers are given where the person making the posting is perhaps out of their depth or even just does not fully grasp the concept. It does not make these people dishonest.
There are of course situations where there are dishonest accountants - but that would normally suggest that the accountant is seeking or obtains some financial reward out of his (or her) actions.
Help by all means but do please take care with terminology.
Geoff Smith
Member ICB Advisory Council
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Dear Angie
This is a relativley simple fix.
You will need to dispose of the asset(s) inquestion writing off both the cost and depreciation. Unless the items have been fully depreciated they will then show in the p&L as a loss on disposal.
If as you assume the assets were sold and the sale proceeds from those assets were treated as trading income then their profit and loss in that year would have been oversated and they would have paid additional tax. By making the adjustment now to correct the Fixed assets postition you will be correcting the previous overstatment in the retained profit boughtforward so it will all come out in the wash.
Credit Fixed Assets at Cost.
Debit Accumulated Depreciation.
Debit the loss on disposal.
If the asset has been fully depreciated then only lines one and two need to be done.
Kind regards
Stuart
Edited at 11 Oct 2011 10:39 AM GMT
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nckbookssaid:
“Hi Angie,
I like your question WHY those asset were being depreciated knowing very well they were no longer part of company asset?
The accountant knew, in my opinion "what he was doing". It is a mess/mistake. It is hard to believe it is a "honest mistake" from an accountant! Should you move on providing the service to this client, you will need to correct this and sit with your client and eventually explain what happened. Accounting rules are clear. Those assets no longer belonging to the company=disposal, they should not have been depreciated during all these years, should have been taken out company books and eventually company should have paid tax on profit resulting from the disposal lol
Again all the best Angie, take a deep breath!
Keep us posted
Nathaliexxx”
Dear All,
My post above was just about expressing an opinion therefore should not be mis-interpreted as defamatory in any way.
Thanks and Regards,
Nathaliexxx
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Hi Nathalie
My only comment would be how could you express an opinion of that nature when you were not in full posession of the facts.
Regards
Stuart
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- Member PM.Dip
- Practice Licence
- 39 posts
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Hi everyone
Sorry, I have been really busy lately and haven't had the chance of thanking you all for your help.
I have discussed the situation with my clients and as confirmed by Stuart we will be disposing of the assets.They are not happy that this will increase the loss/reduce the profit for the current year by £28k but it has to be done.
Thank you everyone for your advice.
Regards
Angie
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Stuart Wildmansaid:
“
Dear Angie
This is a relativley simple fix.
You will need to dispose of the asset(s) inquestion writing off both the cost and depreciation. Unless the items have been fully depreciated they will then show in the p&L as a loss on disposal.
If as you assume the assets were sold and the sale proceeds from those assets were treated as trading income then their profit and loss in that year would have been oversated and they would have paid additional tax. By making the adjustment now to correct the Fixed assets postition you will be correcting the previous overstatment in the retained profit boughtforward so it will all come out in the wash.
Credit Fixed Assets at Cost.
Debit Accumulated Depreciation.
Debit the loss on disposal.
If the asset has been fully depreciated then only lines one and two need to be done.
Kind regards
Stuart
Edited at 11 Oct 2011 10:39 AM GMT”
I am currently doing a year end for a sole-trader who's previous bookkeeper hasn't depreciated the asset value of 3 fixed assets.
The Van bought many years ago, has been fully depreciated through Sage, but the asset still shows on the balance sheet at cost, although it was sold 2 years ago for scrap. £50. How do I correct the balance sheet? Is it the method mentioned above, and what is the code for Accumulated depreciation on Sage?
Thanks
Andrea
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- Member PM.Dip
- Practice Licence
- 10 posts
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gigagirlsaid:
I am currently doing a year end for a sole-trader who's previous bookkeeper hasn't depreciated the asset value of 3 fixed assets.
The Van bought many years ago, has been fully depreciated through Sage, but the asset still shows on the balance sheet at cost, although it was sold 2 years ago for scrap. £50. How do I correct the balance sheet? Is it the method mentioned above, and what is the code for Accumulated depreciation on Sage?
Thanks
Andrea
”
On my version of SAGE there is no code for Accumulated Depreciation as such. Accumulated Version is a fixed asset with a minus sign, or a 'contra-asset', and in SAGE it is found spread among the fixed asset codes between 0 and 999. My version of SAGE has several categories of fixed asset - plant and machinery, office equipment, Furniture and Fixtures, Motor Vehicles etc. Each of these is followed by a corresponding Depreciation code: Plant and Machinery Depreciation, Office Equipment Depreciation, Motor Vehicles Depreciation etc. with a code number one higher than the fixed asset code. These are the Accumulated Depreciation codes which subtracted from their Fixed Asset partners make up the Net Book Values on the balance sheet. I would have to sum all these depreciation codes in the fixed asset section to get the total accumulated depreciation for a business. The debit half of the double entry to the fixed asset depreciation codes goes to an 8000 series SAGE account code, which are overhead expenses codes. Vehicle Depreciation is 8003 in my version of SAGE, and this is the expense code that goes to the Profit and Loss account.
I hope this makes some sort of sense.
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