HOME / COMMUNITY Switch to knowledge base

Upgrading business mobile phone

resolved
#1

Hi

Would appreciate some advice please. When we set up our Ltd company the directors “sold” their personal mobiles to the company at market value.

Due to the age of the phones it has now become necessary to upgrade. New phones purchased, so no issues with putting them in Quickfile. However, the manufacturer is offering a cash amount for trading in the old phones, which will be paid directly into the Director’s personal credit card account. I’m struggling to work out the correct way to represent this in Quickfile.

Thanks

#2

If the phone belongs to the company and the payment goes to a director personally, then that seems to me to be just the mirror image of when a director buys something for the company but pays with their own money - you’d just treat the money as going to the relevant director’s loan account in QuickFile, indicating that they owe it back to the company (or reducing what the company owes them, if the DL account is already showing overdrawn).

#3

Thanks for your reply. Yes, I can how that would work.

I know HMRC allow one mobile phone and contract to be supplied by the employer to each employee without the employee incurring benefit in kind. However, Quickfile now shows that each director has two mobile phones provided by the company. How/what do I have to do in Quickfile to show that “old” phones are no longer owned by our company?

#4

This is getting a bit beyond my personal experience (I’m not an accountant), but I understand that the usual method to record disposal of assets is a journal to reverse the original purchase cost off the asset code and the total accumulated depreciation off the balance sheet depreciation code, and post the balancing entry somewhere appropriate (either “sale of assets” or possibly an expense code for “loss on disposal of assets”). You should check with an accountant for a full answer specific to your circumstances.

#5

Have all the phones (old and new) been capitalised as fixed assets? If they have, then yes you need to dispose of the old phones - Cr. Fixed Assets with the cost, Dr. Accumulated Depreciation in the balance sheet to reverse out the total depreciation charged. Usually you would then also Dr. bank with the proceeds and the balancing figure is profit or loss on disposal in the P&L.
And again, if the director has received the money personally, then rather than Dr. to the bank for the proceeds, just Dr. his loan account instead.
If they were not capitalised originally, then the process will be different.

#6

Hi

Thanks for the reply. I’m guessing that providing I supply my accountant with all the correct figures, he’ll be dealing with all the necessary ledger adjustments as part of our next year end.

As we are VAT registered, I am correct in thinking that the “sales” invoice which I will input into Quickfile to reflect the sale will need to include 20% VAT?

#7

Yes, he can deal with it all.
You don’t need to raise an invoice - you effectively just put journal entries through (adjustments) to reflect the disposal of the assets.

#8

Great, thanks.

Is misc income (4900) the correct ledger to use when tagging cash received from “trade in” of mobile phone? Director has decided to paid the cash he received into company current account.

#9

No, you should tag it to Profit/Loss on Disposal of Fixed Assets - there should be an account in the P&L, sorry I can’t remember what number it would be. Then when the journal is put through to clear the asset balances from the balance sheet, the net book value ends up here too and the difference between that and the cash shows up in the P&L as the profit or loss on disposal.

#10

Hi,

I’ve got a 6 minute video on YouTube showing the accounting entries for disposal of an asset - it’s at https://youtu.be/GajSEFRT2cE

A gain on disposal compared to the net book value will show as ‘other income’ in the P&L statement, a loss will show as an expense.

By the way, if there was a gain on disposal, that gain will show in your P&L statement but will be treated for taxation purposes under capital gains rules - it won’t be taxed as trading income!

#11

Hi Darren

Thanks for the link. Really useful getting a step by step breakdown.

I have currently not run my first year end on my Quickfile account as figures are still being worked on by my accountant. That’s probably making it slightly more confusing for me. I believe that all the journals relating to the disposal will be dealt with by my accountant as part of next year end. Would it be acceptable at this stage to tag the “cash received” for the disposal to profit and loss account (3200)?

#12

This will probably be easeist done by using a journal.

In QF, if you click on Reports, then Chart of accounts you’ll see a button titled ‘New Journal’

Click on the button and you’ll get to the Journal entry screen.

Date the journal as the date you sold the phone or received the cash. Name the journal something like ‘sale of phone’. Leave the auto reverse box unticked.

On the first line type in nominal code 1200 for the current account. In the description, if you want to, you could type ‘sale of phone’. Then enter the amount of cash received in the Debit column.

On the second line, type in nominal code 4200 which is the code for sale of assets, and credit the credit column with the amount of cash received.

Click on Save journal entry and that’s it - you’ve recorded the sale proceeds.

If you didn’t do anything with the cost account, the depreciation and accumulated depreciation account then your accountant will take care of that.

#13

If you’re not vat registered then it’d be ok to do it as a direct tag, if you are vat registered then you might have to account for VAT on the “sale”, treating the money received as inclusive of VAT, and then you’ll need to do it as a sales invoice so the VAT goes onto your next return. Definitely check with your accountant on this one.

#14

Hi,

not trying to confuse the issue here, but I think the cash received needs to be recorded in the disposal account. In QF it is nominal code 4200.

The reason I say this is because the P&L account records the gain or loss on the sale of an asset, not the cash received.

A gain would be made if the cash received was more than the book value of the item when sold.

So for example, if the cash received was say £100, and the net book value of the item (after depreciation) was £60 at the date of sale, then the gain of £40 would be transferred to the P&L - not the £100.

If VAT was involved on the sale of the asset, giving a total cash receipt of £120, then the journal would be:

Debit Current Account - code 1200 - with £120
Credit Sale of Asset Account - code 4200 - with £100
Credit VAT Liability - code 2202 - with £20.

I imagine that QF would pick up the £20 liability for VAT in the next return - but I would check with QF support on this - whether or not QF will pick up a VAT liability entered via a journal.

#15

Not automatically, you’d still have to manually adjust the return.

The way to do it is to journal to reverse the original purchase and the accumulated depreciation off the BS, and debit the whole NBV to “sale of assets“. Then post a sales invoice for the money received on disposal, also to “sale of assets”, accounting for the VAT there. Finally mark the invoice as paid into the relevant account (current account in this example).

The end result is that P&L will show the overall ex VAT gain or loss (debit from the journal, credit from the sale invoice), the VAT return will include the sale proceeds correctly, and the current account will receive the total sale income including VAT.

1 Like
#16

Thanks Ian, I wasn’t sure if QF would pick this up.