When a company sells a vehicle that is secured by a loan, the journal entry must reflect the sale of the asset, the repayment of the loan (if applicable), and any gain or loss on the sale. Here is a step-by-step approach to recording these transactions.
Scenario:
- Vehicle's book value: ₹200,000
- Sale price of the vehicle: ₹250,000
- Remaining loan balance: ₹100,000
Journal Entries:
Record the Sale of the Vehicle:
Date Particulars Debit (₹) Credit (₹) 2024-06-01 Cash/Bank A/c 250,000 To Vehicle A/c 200,000 To Gain on Sale of Vehicle A/c 50,000 (Being vehicle sold for cash) Explanation:
- Cash/Bank A/c is debited with the sale proceeds.
- Vehicle A/c is credited to remove the asset from the books.
- Gain on Sale of Vehicle A/c is credited to recognize the profit on the sale.
Record the Repayment of the Loan:
Date Particulars Debit (₹) Credit (₹) 2024-06-01 Loan Payable A/c 100,000 To Cash/Bank A/c 100,000 (Being loan balance repaid) Explanation:
- Loan Payable A/c is debited to remove the loan liability.
- Cash/Bank A/c is credited to reflect the cash outflow for the loan repayment.
Combined Journal Entries:
If you want to combine the transactions into one comprehensive journal entry:
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 2024-06-01 | Cash/Bank A/c | 250,000 | |
| Loan Payable A/c | 100,000 | ||
| To Vehicle A/c | 200,000 | ||
| To Gain on Sale of Vehicle A/c | 50,000 | ||
| To Cash/Bank A/c | 100,000 | ||
| (Being vehicle sold and loan repaid) |
Explanation:
- Cash/Bank A/c is debited with the sale proceeds.
- Loan Payable A/c is debited to clear the outstanding loan.
- Vehicle A/c is credited to remove the asset from the books.
- Gain on Sale of Vehicle A/c is credited to recognize the profit.
- Cash/Bank A/c is credited again to reflect the repayment of the loan.
These entries ensure that the sale of the vehicle, the loan repayment, and the gain on the sale are all accurately recorded in the financial statements.
