How to scrap a capital asset when using cash basis accounting

This article explains how to record the disposal of a capital asset that your business scraps if you’re preparing your accounts using cash basis accounting.

The disposal will be handled differently if you’re selling the asset or preparing your accounts using accruals basis accounting.

Please note that you only need to follow this process when you scrap a capital asset. When a capital asset depreciates fully by reaching the end of the useful life you selected when you recorded the purchase of the asset, FreeAgent will automatically update your Capital Asset report to reflect this.

If you’ve previously recorded the disposal of your capital asset in FreeAgent by creating journal entries, there’s no need for you to edit or delete those journal entries unless you want the asset to be removed from the Capital Assets report. If you do, first you’ll need to follow the steps outlined below and then delete the journal entries.

Scrapping an asset when no money is received

If no money is received when you scrap an asset, you can add a manual bank transaction for £0.00 in FreeAgent to show that the asset has been disposed of.

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The way you record the disposal in FreeAgent depends on whether you previously recorded the asset purchase as a business cost or claimed capital allowances. If you’re unsure how to record the disposal, please ask your accountant.

Scrapping an asset that was recorded as a business cost

To record the scrapping of a capital asset that was recorded as a day-to-day running cost of the business when it was purchased, select ‘Refund’ from the ‘Type’ drop-down menu.

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Make sure ‘£0.00’ is entered in the ‘Value’ field.

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If your business is registered for VAT, select the appropriate VAT option and the correct rate of VAT for the disposal of the capital asset. If you’re not sure which VAT rate to select, please ask your accountant.

Select the same cost category that you allocated the purchase to from the ‘Category’ drop-down menu and enter a brief description of the disposal in the ‘Description’ field. If you’re not sure which category to select, please ask your accountant.

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Select 'Create and Finish' to complete the process.

Scrapping an asset that was recorded as a capital asset purchase

To record the scrapping of a capital asset that was recorded as a capital asset purchase rather than a cost, select ‘Disposal of Capital Asset’ from the ‘Type’ drop-down menu.

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Make sure ‘£0.00’ is entered in the ‘Value’ field.

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If your business is registered for VAT, select the appropriate VAT option and the correct rate of VAT for the disposal of the capital asset. If you’re not sure which VAT rate to select, please ask your accountant.

Select the asset that you’re disposing of from the ‘Disposed asset’ drop-down menu and enter a brief description of the disposal in the ‘Description’ field.

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Select 'Create and Finish' to complete the process.

The disposal of the scrapped asset will be recorded in your Capital Assets report.

The figure that’s displayed next to the disposal line item is the asset’s net book value, which is the remaining value that the asset had on the date you disposed of it. FreeAgent calculates this by subtracting the amount by which the asset had depreciated up to the date you disposed of it from the asset’s original value.

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