A fixed asset is something that you buy and then use on a continuing basis, such as a computer. The purchase of a fixed asset is typically analysed to a balance sheet account such as FA - Equipment: Cost – additions. For convenience however, small items of expenditure may be analysed to Expenses: Equipment expensed.
The cost of a fixed asset is normally released to the profit and loss account in equal amounts over a period of, for example, five years. Computers may be released over a shorter period such as three years. The amounts released are known as depreciation. VT Transaction+ does not contain a fixed asset register and hence cannot automatically calculate the amount of depreciation for a period.
Depreciation should be entered on a journal (JRN button on the main toolbar). Typical entries are illustrated below:
A simple way of dealing with depreciation is to make all the entries as soon as an asset is purchased:
1.Enter a single journal as above for the depreciation for one month or for one year for the asset, depending on how often you produce accounts
2.If you are depreciating the asset over 5 years and are preparing monthly accounts, make 59 copies of the depreciation journal. If you only prepare annual accounts, make 4 copies. You can make copies of a journal by right clicking on it in any report and choosing the Make Copies command from the pop-up menu. In the Make Copies dialog you can specify the date of the first copy, the number of copies and the interval between copies
3.You may need to slightly adjust the last journal for rounding differences so that the sum of all the journals exactly equals the cost of the asset
Using the above method, you do not need to worry about any further accounting entries unless the asset is disposed of.
Sale of fixed assets
For example; an asset that was sold for £200:
If the asset originally cost £5,000 and had been depreciated by £4,500 (i.e. its carrying value was £500), the following entries need to be made:
•record the receipt from the sale
•remove the cost and accumulated depreciation of the asset from the accounts, i.e. the carrying value
•record the difference between the carrying value and the sale receipt to the profit/loss on disposal account
This can be done by entering a REC transaction for the receipt of £200, analysed as shown in the example below:
If you have entered depreciation using the method outlined earlier, you will also need to delete any future dated depreciation journals.
Disposal of fully depreciated fixed assets
If a fully depreciated asset is disposed of rather than sold, the simplest approach is to enter a JRN transaction to remove the cost and accumulated depreciation of the asset from the accounts.
Using the example above, but instead of being the sold, the asset continued to be used until it was full depreciated, then scrapped.
The disposal is recorded using the JRN transaction follows: