Accounting & Bookkeeping & Small Business Forum

[Bytebro]

Dear All,

I'm relatively new to this so please bear with me. Also if there is a more appropriate place to ask these questions, do please let me know.

I'm finding myself getting rather confused about the correct way to journal the replacement of one vehicle with another.

This is the scenario:

Existing vehicle has:
cost: 3386.00
depreciation brought fwd: 2256.00

New vehicle has:
total cost: 13464.85
made up of:
trade-in on old vehicle: 1750.00
cash deposit paid: 6134.85
finance: 5580.00

Can someone please take the time to explain to me the correct way to journal this?

Many thanks!

[QBConsultant]

You need to write off the cost and accumulated depreciation of the old vehicle. Record the purchase of the new vehicle (cost, loan, cash payment). The difference is gain/loss on the trade-in.

Michelle L. Long, CPA, MBA
Author of: Successful QuickBooks Consulting
Advanced Certified QuickBooks ProAdvisor
National Trainer for Intuit Accountant Trainer/Writer Network
http://www.SuccessfulQuickBooksConsulting.com
http://www.amazon.com/Successful-QuickBooks-Consulting-Comprehensive-starting/dp/1434810690

[pistolmcaction]

There is no gain or loss on the trade-in. The gain or loss either adds to or subtracts from the basis of the new vehicle. In this case, there is a $620 gain calculated as follows:

Trade-in allowance $1,750
Less: Cost of old vehicle 3,386
Depreciation taken 2,256
------
Basis of old vehicle 1,130
--------

Gain on trade-in of old vehicle 620

This $620 gain will reduce the basis of the new vehicle purchased.

The journal entry will look like this:

New vehicle ($13,464.85 cost, less $620 deferred gain) 12,844.85
Accumulated depreciation-old vehicle 2,256.00
Old vehicle 3386.00
Cash 6134.85
Loan payable 5580.00

I hope this helps.[/u]

[pistolmcaction]

When I viewed the JE it didn't come out the way I thought it would. The first two amounts (new vehicle, and Accum. Depr-old vehicle) are debits and the other amounts are credits.

I hope that clears up any confusion that the appearance of the JE may have caused.

[dp1903]

I agree with pistol. His entry is correct.