Page 118 - F3 -FA Integrated Workbook STUDENT 2018-19

Chapter 8

1.3 Disposal using a part-exchange agreement

A part-exchange agreement arises when an old asset is provided in part settlement
of the amount due for the new asset. The balance outstanding for the new asset is
then paid for in cash or a payable created for the liability outstanding.

The procedure to record this transaction is very similar to the three-step process for a
cash disposal. The part-exchange allowance is recorded as (i) part of the cost of the
new asset and (ii) as the disposal value received for the asset sold as follows.

Debit: Asset account

Credit: Asset disposal account

The first two steps are identical; however steps 3 and 4 are as follows:

Step 1 and 2 Step 3 Step 4
 Identical to before  Debit – Non-  Debit – Non-
current asset current asset
account account
 Credit – Disposal  Credit –
account Cash/Payable

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