Step one: Record the disposal of the old asset Remove the value of the old asset from your accounts, including any depreciation. Example You originally bought a vehicle for £6,000, and it has depreciated by £4,000. You're part exchanging it for £2,500 towards a new vehicle. Journal entry for the disposal: | Ledger Account | Details | Debit (£) | Credit (£) | VAT Return | | Motor Vehicles – Cost (0050) | Disposal of asset | 0.00 | 6,000.00 | No | | Sale of Assets (4200) | Proceeds from sale | 6,000.00 | 0.00 | No | | Motor Vehicles – Accumulated Depreciation (0051) | Clear depreciation | 4,000.00 | 0.00 | No | | Sale of Assets (4200) | Remove depreciation | 0.00 | 4,000.00 | No |
Step two: Record the purchase of the new asset In this example, you’re buying a new vehicle for £12,000 including VAT and paying: - Documentation fees: £50
- Option fee: £25
- Road tax: £150
- Deposit: £500
- You part exchanged your old asset for £2,500
- You can reclaim VAT under the Standard VAT Scheme
Journal entry for the new asset: | Ledger Account | Details | Debit (£) | Credit (£) | VAT Return | | Motor Vehicles – Cost (0050) | Net value of new asset | 10,000.00 | 0.00 | Yes | | VAT on Purchases (2201) | VAT on new asset | 2,000.00 | 0.00 | Yes | | Motor Expenses (7300) | Document and option fees | 75.00 | 0.00 | No | | Licences (7301) | Road tax | 150.00 | 0.00 | No | | Bank (1200) | Deposit paid | 0.00 | 500.00 | No | | Sale of Assets (4200) | Part exchange value | 0.00 | 2,500.00 | No | | Hire purchase (2300) | Remaining balance owed | 0.00 | 9,225.00 | No |
Step three: Set up your repayments Once you've recorded the purchase, set up your monthly repayment and interest splits. For guidance, see: |