Disposing of an asset which is still financed by a loan and has a MRP

Has anyone sold an asset on which there is still an outstanding loan and MRP charge. If so what are the accounting entries and implications, especially in relation to the treatment of the capital receipt.
  • Best to think about where you''re up to, which will be something like as follows:

    Asset acquisition
    DR NCA 1000
    CR Bank (1000)

    Loan
    DR Bank 1000
    CR NCL (1000)

    No financing postings on MIRS because this is debt funding, the financing will eventually come from MRP.

    So you end up with balances of Bank nil, NCA 1000, NCL (1000), CAA nil, GF nil.

    Depreciation charge in year (Assume straight line, 20 year life)
    DR CIES dpn 50
    CR NCA (50)

    Reverse in MIRS
    DR CAA 50
    CR GF (50)

    MRP charge (Assume over 10 years)
    DR GF 100
    CR CAA (100)

    This gives balances of Bank nil, GF 100, NCA 950, NCL (1000), CAA (50).

    If you then dispose of the asset, you would expect to do the following:

    Proceeds
    DR Bank 1200
    CR CIES Disp (1200)

    Derecognition
    DR CIES Disp 950
    CR NCA (950)

    MIRS adjustments
    DR GF 1200
    CR CRR (1200)

    DR CAA 950
    CR GF (950)

    This would leave the following balances: Bank 1200, NCA 0, NCL (1000), GF 100, CRR (1200), CAA 900.

    I guess it''s likely you''d then want to repay the debt:

    DR NCL 1000
    CR Bank (1000)

    and clear the CAA by making a further provision from capital receipts (which may be used for debt repayment):

    DR CRR 900
    CR CAA (900)

    This would give you balances: Bank 200, NCL 0, GF 100, CRR (300), CAA 0.
  • You don''t have to use the capital receipt to replace the future MRP charges you would have incurred to finance the original capital expenditure. It would be good practice to do so, but it is still possible to continue charging MRP for assets which have been disposed of / transferred.