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Disposition of small items within a class of other items

Tax Topics
#1

Here’s a question I ran into this past week involving the journal entry for the disposition (write-off) of a fixed asset < $1,000 that still has a small residual UCC left at the end of the previous year.

The default journal entry to dispose this fixed class items if it was by itself in the class is:

  • Accumulated Amortization: (Debit) 550
  • Loss on Disposition Expense: (Debit) 50
    Original Cost: (Credit) 600

Since this item is less than $1,000 and there are other items in the class, it doesn’t seem right to record a Loss on Disposition Expense.

Is there a better way to record this journal entry to account for this ending UCC balance that is used as a disposition price?

Thanks

#2

Two different issues, no? One is accounting (the loss on disposition) the other is tax (reduction of UCC forward by the amount of the disposition).

#3

Why would it not be right to record a loss? It was written off prior to being fully amortized, therefore it’s a loss. However, if they sold it or traded it in (ie received proceeds) then that part of your entry is missing and may well change the result.

Proceeds to bank DR 100
Remove asset at cost CR 600
Acc Amort DR 550
GAIN CR 50

#4

Thanks for replying, Debbie and Don … much appreciated.

I do have the journal entry recorded as a loss. The reason why I was second guessing myself is because the disposition is recorded on column 8 of Schedule 8, and thus decreases the allowable CCA in the year of the other items in that class. It seemed like it was creating a double entry of deductions (ie: the expense claim, plus a change to the CCA). However, looking at it more closely now, that’s not case. I wasn’t noticing that if I depreciate the items in that class separately, the total allowable CCA of the individual items EQUALS the allowable CCA of the merged class of items minus the disposition of this item. So it all works out, confirming that I do need to claim this disposition as a loss.

Sorry to trouble you with this. All is good.