Good Day Everyone
I have a question regarding the Fixed Asset, a property in my case. Let me give you the scenario.
I have purchase the property (Loan from the Bank), kept for couple of years, re-paid partially the loan and made some profit on the end of the day. My question is How to put all this in to Manager?
The first part I know and have done the purchasing part, so I have created a loan through Journal Entry and set up both Liability and Asset, Liability to the BANK and Asset for me. On annual basis I add to the Liability the Bank Interest and create an expense for the interest paid via Journal entry as well. That portion is OK.
Now my problem is that I have sold that property, from the sell the bank loan was paid up fully and the rest of the money was transfered to my account. This is fine but how to account for it that I struggle with. Should I use a Journal entry again and get rid of the asset and diminish my Loan to 0 and only then dispose the Fixed asset? I have just dispose the asset originally and it gave me a loss of the difference of the purchase price and the repaid price in the “Fixed assets - loss on disposal” and that’s not correct. Also I still have the asset in my Asset List now only with the negative value since the price difference between sales and purchase.
Please help and make me understand what to do with it.
Good Day Everyone
First, read the Guides pertaining to fixed asset purchase, depreciation, and disposal. They include examples that will probably answer your questions.
Second, interest should not be added to the liability loan account. Interest is a current expense.
Third, journal entries should not be used for any transaction involving movement of money into or out of the business.
It looks like you were doing everything exclusively with journal entries, but then used Manager’s “Disposed Fixed Asset” checkbox in the Fixed Assets tab. If that’s correct, you should be able to fix this in one of two ways;
- You can continue using journal entries. You would first need to uncheck the “Disposed Fixed Asset” box. Then your disposal journal entry would be as such:
Debit - Loan (liability) — ¤ amount left on the loan
Debit - Cash (asset) — ¤ the rest of the money transferred to your bank
Credit - the Property (asset) — ¤ the original amount of the property
At this point the journal entry should be out of balance. If the debits are more than the credit, you have a gain on the sale; credit the difference between debits and credits to a revenue account called Gain on Disposal of Fixed Asset. If the credit is more than the debits, you have a loss on the sale; debit the difference between debits and credits to an expense account called Loss on Disposal of Fixed Asset.
This will zero your loan and the property, increase your cash by the amount left over after paying off the loan and plug the difference to a gain or loss.
- If you have your bank account setup in Manager you should be able to use a Receipt entry. You can leave the “Disposed Fixed Asset” box checked.
Create a new cash receipt in your bank account. Under “Account” select the loan and enter the “unit price” as the amount left on the loan as a negative number. Add a second line and select the property for “account” and enter the “unit price” as the original amount of the property as a positive number. The total of the receipt should equal the money that was transferred to your bank.
This should zero your loan and the property, increase your cash and the Fixed Asset tab will take care of computing your gain or loss. Since Manager assumes a sale of a fixed asset will be a loss, any gain will show as a negative amount.
I hope this helps sort things out in Manager for you.
I would suggest you consult with a local accountant about this transaction, however; if this property was a business asset it appears you may not have taken depreciation into account and, as Tut pointed out, interest generally should not be added to the liability account that incurs the interest, so your loan balance may be overstated, which would affect the amount of gain/loss on the disposal.
A capital gain(loss) for Tax purposes is nearly always different to that recorded in the financial accounts.
If a capital gain for Tax purposes is required take the advice suggested by @p4unger to consult with a local accountant.
Good Day Tut
I have read through the Guide regarding the fixed asset and the first portion of purchasing I have done accordingly
Regarding the comment:
I think I did not explain what exactly I’m doing with the interest
Firstly, the loan which I have created was the Capital amount only, then to the loan account I add the monthly payments (which brings down my loan account), but they contain both the capital repayment and interest. On annual basis I receive the bank statement of the account (Loan)
On that statement it is described how much of the total annual repayment was for a capital and how much was for interest and other charges. Then I use Jornal to transfer the Interest and other charges from the loan account to the expense account for the amount on the statement, on the end of the day My capital left to be repaid comes back to the correct value and the interest paid (as expense) comes as deductible expense. Since I have to do it annually with the TAX I assume this I OK
I hope I explain this properly
Ok. What you explained should be fine. You can dispose of the asset before or after entering the sale transactions. The only difference is which accounts you post to. This is discussed in the Guide about disposal.