Accounting Practices
501
Chapter 9
Disposal of fixed assets
Cathy Saenger, Senior Lecturer,
Eastern Institute of Technology © Pearson 2011
Disposal
$20,000
What happens when we get rid of a fixed
asset, by selling it?
Ch9B - Disposal
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Disposal
Depreciation is not
calculated in the year
of disposal
$20,000
Steps to follow for the disposal of an asset:
1. Record the proceeds of the disposal
(cash or other)
2. Close the fixed asset account (Computers)
3. Close the accumulated depreciation
account (Computers)
4. Close the disposal account by
transferring the balance to a gain on
disposal or a loss on disposal account
There are a few things to think about
Ch9B - Disposal
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Disposal
Depreciation is not
calculated in the year
of disposal
$20,000
Steps to follow for the disposal of an asset:
1. Record the proceeds of the disposal
(cash or other)
2. Close the fixed asset account (Computers)
3. Close the accumulated depreciation
account (Computers)
4. Close the disposal account by
transferring the balance to a gain on
disposal or a loss on disposal account
All the above are done through a temporary
Disposal account
Ch9B - Disposal
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Disposal
Extract from Trial Balance at date of
disposal
Dr
Cr
Computers at cost
Accum. Deprec (Computers)
20,000
12,000
On 1 Feb 20X2: Sold computers for cash, $6,000
(GST exclusive)
Can you see that the book value of the
Computers is $8,000?
Book value = Cost price less accum. deprec.
We can therefore immediately see that we
received less than it was worth, which
means a loss of $2,000 (8,000-6,000)
Ch9B - Disposal
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Disposal
Extract from Trial Balance at date of
disposal
Dr
Cr
Computers at cost
Accum. Deprec (Computers)
20,000
12,000
On 1 Feb 20X2: Sold computers for cash, $6,000
(GST exclusive)
Step 1. Record the proceeds of the disposal (cash)
General Journal
Account Titles
Date
1/2/X2 Bank
GST Collected
Disposal (Computers)
Being entry required to
record sale of computers
Ch9B - Disposal
Debit Credit
6,900
900
6,000
6
Disposal
Step 1. Record the proceeds of the disposal (cash)
General Journal
Account Titles
Date
1/2/X2 Bank
GST Collected
Disposal (Computers)
Being entry required to
record sale of computers
General Ledger
Date Details
Ref Dr
Disposal (Computers)
1/2/X2 Bank
GJ
Debit Credit
6,900
900
6,000
Cr
Balance
6,000 6,000 Cr
Lets post to the Disposal account in the
Gen Ledger
Ch9B - Disposal
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Disposal
Extract from Trial Balance at date of
disposal
Dr
Cr
Computers at cost
Accum. Deprec (Computers)
20,000
12,000
On 1 Feb 20X2: Sold computers for cash, $6,000
(GST exclusive)
Step 2. Close the asset account
General Journal
Account Titles
Date
1/2/X2 Disposal (Computers)
Computers at cost
Debit Credit
20,000
20,000
Being entry required to close the
asset accounts
Ch9B - Disposal
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Disposal
Step 2. Close the asset account
General Journal
Account Titles
Date
1/2/X2 Disposal (Computers)
Computers at cost
Debit Credit
20,000
20,000
Being entry required to close the
asset and accum deprec accounts
General Ledger
Date Details
Cr Balance
Ref Dr
Disposal (Computers)
1/2/X2 Bank
GJ
6,000 6,000 Cr
Comp at cost
GJ
20,000
14,000 Dr
Lets post to the Disposal account in the
Gen Ledger
Ch9B - Disposal
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Disposal
Extract from Trial Balance at date of
disposal
Dr
Cr
Computers at cost
Accum. Deprec (Computers)
20,000
12,000
On 1 Feb 20X2: Sold computers for cash, $6,000
(GST exclusive)
Step 3. Close the accum depreciation account
General Journal
Account Titles
Date
1/2/X2 Accum. Deprec. (Computers)
Disposal (Computers)
Debit Credit
12,000
12,000
Being entry required to close the
accum deprec account
Ch9B - Disposal
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Disposal
Step 3. Close the accum depreciation account
General Journal
Account Titles
Date
1/2/X2 Accum. Deprec. (Computers)
Disposal (Computers)
Debit Credit
12,000
12,000
Being entry required to close the
accum deprec account
General Ledger
Date Details
Cr Balance
Ref Dr
Disposal (Computers)
1/2/X2 Bank
GJ
6,000 6,000 Cr
Comp at cost
GJ
20,000
14,000 Dr
Accum deprec
GJ
12,000 2,000 Dr
Lets post to the Disposal account in the
Gen Ledger
Ch9B - Disposal
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Disposal
Step 4. Close the disposal account
General Ledger
Date Details
Cr Balance
Ref Dr
Disposal (Computers)
1/2/X2 Bank
GJ
6,000 6,000 Cr
Comp at cost
GJ
20,000
14,000 Dr
Accum deprec
GJ
12,000 2,000 Dr
General Journal
Account Titles
Date
1/2/X2 Loss on disposal
Disposal (Computers)
Debit Credit
2,000
2,000
Being entry required to close the
disposal account and record the loss
The balance in the Disposal account represents
the loss on disposal of the computers - the
book value was $8000 and we sold it for $6000
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Disposal
Step 4. Close the disposal account
General Ledger
Date Details
Cr Balance
Ref Dr
Disposal (Computers)
1/2/X2 Bank
GJ
6,000 6,000 Cr
Comp at cost
GJ
20,000
14,000 Dr
Accum deprec
GJ
12,000 2,000 Dr
Loss on disposal GJ
2,000 NIL
General Journal
Account Titles
Date
1/2/X2 Loss on disposal
Disposal (Computers)
Debit Credit
2,000
2,000
Being entry required to close the
disposal account and record the loss
Lets post to the disposal account
Ch9B - Disposal
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Disposal
The same steps are followed in the
following cases:
Asset is sold for more than the book value,
which would result in a gain on disposal
Asset is written off, which would result in a
loss on disposal equal to the book value
Asset is damaged and an insurance claim
is received, which would result in a
loss/gain on disposal (difference between
the book value and the insurance claim)
Asset is traded in for a new asset, which
would result in a loss/gain on disposal
(difference between the book value and
the trade-in value)
Ch9B - Disposal
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