Ive had a search and some previous advice on this… However, I still cannot work out the journal entries.
Previous advice was to log it as a gain on disposal rather than a sale…
But I have confused myself with the journal entries, not least as the journals do not have a gain on disposal.
When previously selling equipment, the item was
Capital expenditure cr800
current ac dr400
loss on sale dr400
But this is obviously not the case for a AIA item
We purchased some kit for 3000
and sold it with known issue for £1900
I cannot see how this could be balanced in the journal entries.
And further, how it would be included then on a self employed tax return.
Id have thought it would show on the P&L as revenue?
It would be good to get this down as we are currently storing stuff that literally needs taking to the tip because Im worried about the accounting for it.
Thanks for your time.
I think your issue is, how can it be a gain on disposal if you sold it for less than you purchased it for? It’s not a gain.
Who advised you?
With regards to the tax return. You would enter the difference between purchase and sale price under the capital allowance section. But depending on whether your using a paper return, a short paper return, hmrc website, or software will depend on how its entered so I’m afraid you’d be best advised to speak to an accountant.
@SQKaccountancy , in March 18 on here :
You buy an 2 assets for £100 each and claim AIA of £200 in that year. The next year one of them gets broken and you sell the other for £25. You would treat as both of them as disposed and include a £25 gain on disposal. This £25 will be treated as a balancing charge in your tax computation.
But how do I include that in the journal on quickfile?
Okay that was quite badly written if I am being honest. You would only register a gain on your P&L if the sale price is higher than the net book value (cost of the asset less the depreciation)
The journal should be:
Cr Asset X <- This will take get it off your balance sheet
Dr Depn Y <- Same as the above
Dr Bank Z
Dr/Cr Gain/loss on item X-Y-Z <- If this is a negative number then you need to Dr. If it a postive number, you will need Cr on this line.
Where:
X is the value you paid for the item
Y is the value of the depreciation for the item on the balance sheet
Z is the amount you sold the item for. This could be zero if it broke or stolen
In terms of the tax affects, this really depends on what you have included in the prior returns being honest with you.
Kind regards,
Chris
I think I cant get my head round it because the whole lot was claimed as AIA so it seems that its being claimed for twice.
Cr Asset 3574.25 <- This will take get it off your balance sheet
Dr Depn 0 <- Same as the above
Dr Bank 1900
Dr/Cr Gain/loss on item X-Y-Z <-
I have not accounted for depreciation. They are industry standard equipment and I have no idea on a life span. Someone has answered the depreciation issue previously so I am going to get that done next…
He sold them cheap because both the main units failed on an event, and again when being viewed. An accountant is not an option. He is a bit weird IMO, and will not permit me to share information with anyone - bit of personal background.
To me it appears for any AIA claimed item all money in is a gain?
Okay so if the asset was not depreciated and we claimed full AIA then then sale price would be treated as a balancing charge on the tax return.
However this is difficult to confirm exactly what has happened without fully reviewing the situation.
Kind regards,
Chris
But I cannot work out how to remove it from the asset value (balance sheet). I know where it goes on the tax return as Ive seen the space to enter a balancing charge (who said tax should be taxing eh) so Im guessing the figures are entered just as the AIA is. But in the journal entry…no idea
cdj’s credit (for ease) 3000
BANK 1900
but what is the difference called ? the 1100? the gain is the £1900 recieved…This is what is puzzling me.
The journal entries will be a similar issue for the scrap equipment that I am hoarding just because I cant account for getting rid.
SPeaker purchase cr £500
bank 0
what catagory does the balancing side fall under when AIA has been claimed
I guess what Im trying to say is the dr cr journals dont balance. I wouldnt let me enter those figures if I tried
AIA (and any other capital allowances) is only a matter for your tax return, it’s irrelevant to your actual accounts.
When you bought the item it went onto your balance sheet as a fixed asset at £3574.25. The AIA reduced your taxable profit by that amount but it didn’t affect your book profit in the QuickFile P&L (because it’s a balance sheet transaction).
When you sold it for £1900 you’d account for that as a sales invoice to the “sale of assets” nominal, which will initially show as £1900 income in your P&L. Then, to get the item off your balance sheet you’d journal credit 3574.25 to the asset code and debit 3574.25 to the sale of assets code. If you had already done some depreciation then you wouldn’t debit the whole 3574.25 to SoA, you’d reverse the accumulated depreciation and just put the balancing figure to SoA.
The result of this process is that the balance on SoA represents the loss on disposal of £1674.25 (and since it is a loss rather than a gain you might want another journal to move it to an overheads rather than a sales code).
For your tax return you’d enter the £1900 as a balancing charge. So for tax purposes you claimed a 3574.25 reduction in taxable profit in one year and a 1900 increase the next, in your books you recorded no cost in year 1 and 1674.25 loss in year 2.
ah YES! This is how Im confusing myself, by not separating the P&L from the Balance sheet in my head. I do appreciate your help again Ian. I do get myself in a whizz over this every year!
I have however, tried to create a sale invoice for the item, but cannot allocate it to the nominal so Im guessing that I need to do this in a journal. I only have an option to select nominals for purchases.
I found it, sneaky little cog wheel hiding in a dropdown!
Marvellous…Thank you for your time again x
Would I move the loss on disposal from SoA by ; crediting SoA and debiting something like misc expenses?
Right. Thats worked. Its beautiful when I all works like magic!
Do you happen to know if, when I submit to the tax credits section, I add the balancing charge to the revenue minus expenses?
I believe tax credits require your Assessable figure. So if its been reduced by the balancing charge give them that figure, and likewise if its gone up give them that figure.
I’d create a separate nominal under the overheads section so you can separate out the disallowed bits when it comes to turning your P&L into your tax return.