Asset Acquisition, Depreciation and Disposal
The acquisition (purchase), depreciation and disposal (sale) of Assets is something that takes place regularly in all business’s and quite often is not recorded correctly in their accounts. The following is a quick look at both the acquisition, depreciation and disposal of assets and how they should be recorded in the M.Y.O.B. accounting software.
Asset Acquisition
Most assets acquired would attract GST and the CAP tax code should be used for them. You also need to be aware that not all assets have GST. Some can be GST FREE as in the case of the purchase of a going concern, or a purchase from a private individual. In these cases a new Tax code will need to be created as follows;
When Assets are acquired, the way they are recorded in the MYOB software depends upon how the payment of the acquisition is made.The most common ways acquisitions are paid for are; cash, cheque, eftpos, credit card, bank loan, chattel mortgage or hire purchase.
Please Note: We will not be looking at the purchase of assets using Hire Purchase because there are very good MYOB support notes. Support note # 9111 covers Hire Purchases for accural accounting and #9112 for cash accounting.
In the following examples we will be looking at the purchase, depreciation and sale of a Toyota Land Cruiser Ute from a make believe Bill Smith’s Car Sales for $28000.00.
As assets are recorded in the Assets area of the Chart of Accounts it is important that we first check to make sure we have the correct accounts in place.For the purpose of the following examples there needs to be a header account for Motor Vehicles as well as detail accounts for Motor Vehicles at Cost (CAP) and Motor Vehicles Accum Dep’n (N-T).
We will also require some Expense accounts for Motor Vehicles and normally they would be set up as follows;
Cash, Cheque, Eftpos or Credit Card
If paid in full from a bank account using cash, cheque, eftpos or a credit card, then the entry should be recorded the same as for every other purchase, using Enter Purchasesin the Purchases Command Centre.
In the following example the total purchase price of the vehicle is $28000.00. This is made up of the price of the vehicle at $27500.00 and $500.00 of Registration and Compulsory Third Party Insurance, $250.00 of this is the CTP premium and attracts GST.
Note: The Tax inclusive box is ticked in this case. It is important that this is ticked or unticked to match the source documentation so as to ensure the correct amount of GST is calculated.
Payment for these entries should be recorded using Pay Bills. In the following case paid by cheque #107 from the NAB cheque acct #4581. If this payment had been from a different bank account or credit card then the Pay from Account box needs to be changed to show the account it is paid from.
Bank Loan and Chattel Mortgage.
If a bank loan or a chattel mortgage is used to obtain the asset the entry is recorded through Record Journal Entry in the Accounts Command Centre. As with the previous example GST can usually be claimed at the time of purchase. Before doing the journal entry you need to check the Chart of Accounts to ensure you have the correct accounts in place.
You will need to create a couple of Liability accounts and Expense accounts if you do not already have them.
In Liabilities create a Loan account and an Unexpensed Interest account as follows,
In the Expenses accounts create a Loan charges account,
And in Other Expenses create a Loan Interest account,
Now that all the accounts are in place you need to check the source documentation and make sure we have all the necessary information. There should be a Tax Invoice and a Loan / Chattel Mortgage document.
In the following example the total purchase price of the vehicle is $28000.00. This is made up of the price of the vehicle of $27500.00 and $500.00 of Registration and Compulsory Third Party Insurance. $250.00 of this is the CTP premium and attracts GST.
The total amount of the loan is $36000.00. This is made up of an application fee of $512.00, the principle of $28000.00 and the interest of $7488.00.
The repayments will be $1000.00 paid every month for 36 months.
Capital Costs include the purchase value of the vehicle and the delivery costs if any.
Expenses include Registration, Insurance and Loan charges.
Liabilities will be the Loan and the unexpensed interest on the loan.
The Journal Entry for the purchase should be as follows,
The monthly repayment should be made through Spend Money in the Banking Command Centre.
If a payment schedule is available then the interest amounts would vary with each payment.
In this example and for the ease of bookkeeping the Interest is written off as 1/36th each month and needs to be shown in the repayment entry as follows.
This payment will be taken out of the bank account automatically every month so we have used DD for direct debit as a cheque #. Note Tax Code for Loan interest should be FRE or if you have a Financial Transaction FIN Tax code use that, not the INP in the screen shot below unless the INP is set as 0%.
Deposits Paid Please Note:
Any deposits paid for all types of purchases would be entered as a Spend Money transaction from the Bank Acct / Credit Card to a Deposits Paid account – This should be an Asset account.
When the Journal Entry for the purchase is made the deposits are entered as a Credit from the Deposits Paid Acct.
Asset Depreciation.
Asset Depreciation usually is done by the accountant at the end of the financial year and is included in the accounts end of year adjusting journals.
However if an asset is sold part way through a year you will need to contact the accountant and find out how much depreciation to allow for the part year and then enter the depreciation amount via a journal entry.
This is required because when assets are disposed of(sold) you need to record the difference between the value of the asset at the time of disposal (at cost less accumulated depreciation) and the amount it is sold for.
In our example the vehicle was sold in January, and the accountant has set the depreciation value as $2800.00. This needs to be entered as follows,
Disposal of Asset
When assets are disposed of or sold, you need to record the difference between the value of the asset at the time of disposal / sale (at cost less accumulated depreciation) and the amount it is sold for. This difference is recorded in either Other Income or Other Expenses. So you need to ensure you have accounts for this to happen.
In Other Income create the following;
And in Other Expenses create the following;
In our example the value of the asset at the time of disposal was $22200.00 ( the at cost value $25000.00 less the depreciation of $2800.00). Note this value is GST FREE.
The assets was sold for $22000.00 ($20000.00 plus $2000.00 GST) which means that there was a loss on the sale of $2200.00.
The Journal entry would be as follows;
The nett result of the above is;
The M/V at cost account will end up equal to the M/V Accum Dep’n so the total value of the asset is removed from the accounts.
The amount of the sale $22000.00 is placed into the bank account.
The GST amount of $2000.00 is placed into the Liability account GST Collected.
And the loss of $2200 is shown in the Other Expenses disposal of assets account 9-5000.
If when the asset was disposed of a nett profit remained from the sale instead of a nett loss, then a similar journal would be used but you would use the Other Income disposal of assets account 8-8500.