Journal Entry for Repair of Vehicle

Journal Entry for Repair of Vehicle

In this article we would discuss the repair of the vehicles. Repair expense may be classified into revenue expenditure and Capital expenditure. Revenue expenditure is charged to profit & loss account, while capital expenditure is added to the cost of asset.

Journal Entry for Repair of Vehicle as Revenue Expense

Small expense is usually of revenue nature and is debited in the books of account. The two important conditions for recognizing the repair as revenue expenditure are listed below

·         Involves small amount.

·         Provides short term benefit.

For example changing of a nut costing 10 is a normal repair and shall be debited in the books of account.

Date	Particular	Ledger Folio	Dr.	Cr.
	Repair of Vehicle		10
	Cash			10

Journal Entry for Repair of Vehicle as Capital Expenditure

Capital expenditure is expected to provide the long term benefit like improvement of efficiency etc. These expenses shall be added to cost of asset. The two important conditions for capital expenditure are

·         Involves big amount.

·         Provides long term benefit.

For example an engine overhaul expenditure of PKR 20,000 would reduce the fuel consumption would be treated as capital expenditure. The expenditure shall be added to cost of asset by debiting the asset and crediting the cash (assuming cash expenditure).

Date	Particular	Ledger Folio	Dr.	Cr.
	Vehicle		20,000
	Cash			20,000

Journal Entry for Vehicle Purchase on Credit

Journal Entry for Vehicle Purchase on Credit

Journal entry for vehicle purchase would be recorded by debiting the vehicle account and crediting the individual creditor account. The asset was debited being increase in asset and creditor is credited being increase in liability. The sample journal entry is shown below

Date	Particular	Ledger Folio	Dr.	Cr.
	Vehicle		xxx
	Creditor			xxx

 

Example of Journal Entry for Vehicle Purchase on Credit

Company ABC purchased a new vehicle on credit for 500,000 from See motors. The transaction shall be recorded in the books of accounts by debiting the vehicle account as addition to asset and crediting the See motor as increase in liability. The journal entry is shown below

Date	Particular	Ledger Folio	Dr.	Cr.
	Vehicle		500,000
	See motor			500,000

The following journal entry shall be recorded on payment of liability. The liability shall be reduced / removed by debiting the See motor and cash would be credited.

Date	Particular	Ledger Folio	Dr.	Cr.
	See Motor		500,000
	Cash			500,000

Journal Entry for Donated Building

Journal Entry for Donated Building

In this article we would discuss the journal entry for donated building. There are two types of donation of building. The building donated to a company is called in bound donation and building donated by the company is known as outbound donation.

Journal Entry for Inbound Donation of Building

The inbound donation is treated as income for the company. The journal entry for inbound donation is recorded in the books of accounts by debiting the building being increase in asset and donation is credited being increase in income. The transactions are recorded at fair value of the asset.

Date	Particular	Ledger Folio	Dr.	Cr.
	Building		xxx
	Donation Income			xxx

 

Journal Entry for Outbound Donation of Building

The outbound donation of building is treated as donation expense for the company. Journal entry for outbound donation (donation given) is recorded by debiting the donation as expense and crediting the donated building being decrease in asset.

Date	Particular	Ledger Folio	Dr.	Cr.
	Donation Expense		xxx
	Building			xxx

Example of Journal Entry for Donated Building (Inbound Donation)

A building was received by the company as donation. The carrying amount of building was 10,000; however the fair value of building was 50,000. This transaction would be recorded by debiting the building with and crediting the donation with fair value of building i.e. 50,000. Journal entry is shown below

Date	Particular	Ledger Folio	Dr.	Cr.
	Building		50,000
	Donation			50,000

 

Example of Journal Entry for Donated Building (Outbound Donation)

A building was denoted by the company, the fair value was 50,000, and the carrying amount of building was 10,000. Journal entry shall be recorded in the books of accounts with the fair value i.e. 50,000. The journal entry is shown below

Date	Particular	Ledger Folio	Dr.	Cr.
	Donation Expense		50,000
	Gain on Building			40,000
	Building (Carrying amount)			10,000

It is important to note that difference between fair value of building and carrying amount of building is charged to profit & loss account. This difference may be profit or loss; in this case it is a gain, because the fair value exceeds the carrying value.

Journal Entry for Building Depreciation

Journal Entry for Building Depreciation

Journal entry for building depreciation shall be recorded by debiting the depreciation account and crediting the accumulated depreciation for building. It is important to note that accumulated depreciation is a contra account for building.

Date	Particular	Ledger Folio	Dr.	Cr.
	Depreciation		xxx
	Accumulated Deprecation for Building			xxx

The deprecation may also be charged to building directly by debiting the depreciation account and crediting the building account.

Date	Particular	Ledger Folio	Dr.	Cr.
	Depreciation		xxx
	Building			xxx

 Example of Journal Entry for Building Depreciation

A building purchase for 100,000, the company decided to charge the depreciation at the rate of 5% on straight line. The journal entry per annum shall be charged as under

Under First Method

Depreciation is debited and accumulated depreciation is credited being decrease in asset (through contra account liability account).

Date	Particular	Ledger Folio	Dr.	Cr.
	Depreciation		5,000
	Accumulated Depreciation for Building			5,000

The first method allows better presentation of asset in the balance sheet.

Building at Cost	100,000
Accumulated Depreciation	5,000
Carrying Amount	95,000

Under Second Method

In this method depreciation is debited and asset is credited.

Date	Particular	Ledger Folio	Dr.	Cr.
	Depreciation		5,000
	Building			5,000

The second method reflects the limited information.

Building

95,000