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| Corporate Practice bd |
Accounting-Treatment -for-sale-of-fixed Assets-with Examples
When a company sells a fixed asset, the accounting entries need to reflect the removal of the asset from the books, any accumulated depreciation, the cash received from the sale, and any gain or loss on the sale. Here are the steps and corresponding journal entries involved in the sale of fixed assets, with practical examples.
Steps and Accounting Entries:
01. Remove the Asset's Cost from the Books
02. Remove the Accumulated Depreciation
03. Record the Cash Received
04. Recognize Gain or Loss on Sale
Example Scenario:
Let's assume a company sells a machine with the following details:
Original cost of the machine: Tk. 100,000
Accumulated depreciation: Tk. 70,000
Selling price: Tk. 50,000
Journal Entries
1. Remove the Asset's Cost from the Books
Journal Entry:
Loss on Sale of Asset Account Dr 30,000
To Fixed Asset Account 30,000
2. Remove the Accumulated Depreciation
Journal Entry:
Accumulated Depreciation Account Dr 70,000
To Fixed Asset Account 70,000
3. Record the Cash Received
Journal Entry:
Bank Account Dr 50,000
To Gain on Sale of Asset Account 50,000
4. Recognize Gain or Loss on Sale
First, we need to determine if there's a gain or loss:
Book value of the asset: Tk. 100,000 (cost) - Tk. 70,000 (accumulated depreciation) = Tk. 30,000
Selling price: Tk. 50,000
Gain on sale: Tk. 50,000 (selling price) - Tk. 30,000 (book value) = Tk. 20,000
5.Journal Entry for Gain:
Bank Account Dr 50,000
Accumulated Depreciation Account Dr 70,000
To Fixed Asset Account 100,000
To Gain on Sale of Asset Account 20,000
If there were a loss instead of a gain, the entry would be different. For instance, if the selling price was Tk. 20,000:
Book value of the asset: Tk. 30,000
Selling price: Tk. 20,000
Loss on sale: Tk. 30,000 (book value) - Tk. 20,000 (selling price) = Tk. 10,000
6.Journal Entry for Loss:
Bank Account Dr 20,000
Accumulated Depreciation Account Dr 70,000
Loss on Sale of Asset Account Dr 10,000
To Fixed Asset Account 100,000
Summary of Accounting Entries
1. Remove the Asset's Cost:
Loss on Sale of Asset Account Dr 30,000
To Fixed Asset Account 30,000
2.Remove the Accumulated Depreciation:
Accumulated Depreciation Account Dr 70,000
To Fixed Asset Account 70,000
2. 3.Record the Cash Received:
Bank Account Dr 50,000
To Gain on Sale of Asset Account 50,000
3. 4.Recognize Gain or Loss:
For Gain
Bank Account Dr 50,000
Accumulated Depreciation Account Dr 70,000
To Fixed Asset Account 100,000
To Gain on Sale of Asset Account 20,000
4. For Loss:
Bank Account Dr 20,000
Accumulated Depreciation Account Dr 70,000
Loss on Sale of Asset Account Dr 10,000
To Fixed Asset Account 100,000
These entries ensure that the sale of fixed assets is accurately recorded, reflecting the removal of the asset, the receipt of cash, and the gain or loss on the sale.