does anyone knows the accounting treatment of disposal of non current assets? please provide it in Dr and Cr?

Question

entries. thanks

Answer 1

You need to close off all accounts relating to the fixed asset being disposed to a gain or loss on disposal of fixed asset a/c. Assume cost of a truck was $40k. Its estimated useful life was 4 yrs with no salvage value so each yr's depn was $10k. After 3 yrs you decided to upgrade to a bigger truck. Before adjustment, your cost a/c had a DR bal of $40k, and your accumulated depreciation a/c had a CR bal of $30k, your nbv was $10k. You sold it for $12k. Your journal entries are:
Dr Cash 12k (proceeds from sale)
Dr Accd depn 30k (to close off the a/c)
Cr Motor vehicle at cost 40k (to close off the a/c)
Cr Gain on disposal of motor vehicle 2k (to recognise gain)

Let's assume the same thing but this time you sold it for $8k. Your journal entries would be:
Dr Cash 8k (proceeds from sale)
Dr Loss on disposal of motor vehicle 2k (to recognise loss)
Dr Accd depn 30k (to close off the a/c)
Cr Motor vehicle at cost 40k (to close off the a/c)

Answer 2

Yes, well in canada the treatment would look something like this

Well when you purchase the asset, it gets a debit for the cost of the asset, right. Lets say we bought it for $20,000

Then each year, the asset gets depreciated, and we dont write the assets off directly, because that has to be listed at its COST, so another account, a contra asset account is used. called Accumulated Depreciation.

Therefore On the balance sheet, the asset will look something like:

Automobile: 20,000
less Accumualted Depreciation 5000
Net Value of the Automobile
$15000

RIGHT?? The asset will have a debit balance and the accumulated depr will have a credit balance.

OK so remember, the net value of the asset equals the BOOK value(COST less Accum depreciation). if you sell for more than book value, you will have a GAIN, if you sell for less than the book value, a LOSS

OK So lets ACCOUNT FOR SELLING the Automobile at
$20,000

OK get rid off all of the postings for the asset, assume selling car for $20,000 cash, which is MORE than the book value, so we will have a gain of $5000, which is revenue


debit acc deprecition 5000
debit CASH 20,000
credit automobile 20,000
credit gain on sale 5,000

Ok So lets sell that car for $10,000 CASH which is $5,000 less than the book value of $15000 right, so we know we will have a loss for the transaction OK so get rid ot the existing balances for the asset

Debit accumulated depr 5,000
Debit CASH 10,000
Debit LOSS on SALE 5,000
Credit Automobile 20,000


The gain or loss on the sale gets reported on the income statement. Obviously the LOSS, with a debit balance will reduce overall income.

Answer 3

In a disposal, you may get cash or another asset (exchange). So you can debit either cash or any other asset account.

What you lose is the net book value of the asset. So credit the asset account. If you maintain 2 accounts for cost and depreciation separately, then credit asset a/c (cost) debit accumulated depreciation a/c. Somehow net balance should be credited.

Then if there is a difference between what you got and what you lost, it has to go to the income statement as a profit or loss. If you got more than you lost, it is a profit.

Ex
Dr Cash--------------------------- 300
Dr Acc. Depreciation----------- 750

Asset a/c-------------------------------------------------- 1000
Profit ----------------------------------------------------------- 50

What you got -----------= 300
You lost =(1000-750) = 250
Your profit is-------------= 50

Answer 4

Balance sheet affect - would be to Dr. Acc. Depreciation, and a Loss on Disposal, if applicable and Cr the asset for its original cost to remove the asset and its acc. depreciation.
Income statement affect would be to show the loss, if applicable, in income from continuing operations gross of tax effect.