Disposal of Assets - Accounting (Class XI)

Scrap value is the estimated cost that a fixed asset can be sold for after providing in for full depreciation.  When an asset is purchased, asset account is debited as assets have debit balance. So when scrap is sold, asset account is credited with the amount received on sale. 

As the assets is already retired from active use, the valuation has to be shown on the basis of net book value or net realizable value whichever is lower. 

If the asset is disposed off, the profit or loss generated on account of sale has to be transferred to the respective asset a/c. If the sale proceed is more than the written down value of the asset, there will be profit and if the sale proceed is lower than the written down value, there will be loss on sale of asset. 

Option D is the correct one.

1. No proceeds, fully depreciated. Debit all accumulated depreciation and credit the fixed asset.
2. Loss on sale. Debit cash for the amount received, debit all accumulated depreciation, debit the loss on sale of asset account, and credit the fixed asset.
3. Gain on sale.

An asset can be disposed off due to the following reasons:

Any addition done in fixed asset should be added to the asset a/c. Depreciation on addition has to be provided on pro-rata basis i.e. depending on the utilization of assets. For example, if an addition is done on 1st Oct 2017, than depreciation will be charged for 6 months only on the additions. 

Asset disposal account is prepaed to ascertain profit or loss, when the asset is sold or dicarded. Asset disposal account is debited with original cost of asset disposed off.

Depreciation is charged on the book value of the machine at the beginning of the year. If any new machinery purchased during the year, the depreciation is charged on pro rata basis for the months for which asset is used. 

Option B is the correct one.

A disposal account is a gain or loss account that appears in the income statement, and in which is recorded the difference between the disposal proceeds and the net carrying amount of the fixed asset being disposed of.

Here the B option is right answer.

Asset disposal account is prepaed to ascertain profit or loss, when the asset is sold or dicarded. Asset disposal account is credited with :

Book Value of Machinery is Rs.100000

Book Value of Machinery is Rs.300000

Cost of Machinery is Rs.400000

Following are the journal entries in respect of sale of fixed assets :

Asset Disposal A/c.

Asset disposal is the removal of a company's long term asset from the company's accounting records. It is an important concept because it primarily relates to company's capital assets. A depreciable asset can be disposed off or sold either at the end of its useful life or during its useful life. Disposal of asset may be during its useful life due to obsolescence or other factors. 

Solution to the given problem is as under:

Following are the journal entries in respect of sale of fixed assets :

Solution to the given problem is as under:

Option B is correct. . When depreciation
charged is not deducted from assets it is recorded in a separate account named
provision for depreciation account. The asset account appears in its book at
its original value. At the time of sale of asset, accumulated depreciation from
this account is transferred to asset account. 

As per the golden rules of accounting for nominal account all expenses and losses are debited and all income and gains are credited and for rael account, what comes in debit and what goes out is credit.

Option A is the Correct one.

Depreciation is charged on a certain percentage on each of the asset every year. Depreciation is an indirect cost for which the following entry will be passed:

On sale of any asset, there must be some profit/loss as the amount realized on sale may be more or less compared to the written down value. If the sale proceed is more than the written down value, there will be a profit and if the sale proceed is less than the written down value, there will be a loss. 

b'whenever a partner exits a partnership, the books of accounts of such a firm have to be settled. the outgoing partner or his legal representative have to be paid their dues. so that revaluation of assets is carried out through profit and loss account.'

The disposal of assets involves eliminating assets from the accounting records. This is needed to completely remove all traces of an assets from the balance sheet. An asset disposal may require the recording of a gain or loss on the transaction in the reporting period when the disposal occurs. The journal entry recorded as Debit cash for the  amount received , debit all accumulated depreciation, debit  the loss on sale of asset account, and credit the fixed asset.

Book value of the asset on the date of sale = Selling cost of asset + Loss on sale of assets

When a business is discontinuing and liquidating assets within a short period, the going concern assumption is no longer valid. Assets are valued at their net realizable value, which is the expected selling price minus disposal costs.

Total cost = 14000 + 1000 = 15000. Annual depreciation = 10% of 15000 = 1500. After 3 years, total depreciation = 1500 * 3 = 4500. Book value = 15000 - 4500 = 10500. Sale price = 13000. Profit = 13000 - 10500 = 2500.

Total cost = 15000. Annual depreciation = 1500. After 3 years, book value = 15000 - 4500 = 10500. Sale price = 9000. Loss = 10500 - 9000 = 1500.

Total cost = 150000. Depreciation (WDV 15%): Year 1: 150000 * 0.15 = 22500, BV = 127500. Year 2: 127500 * 0.15 = 19125, BV = 108375. Year 3: 108375 * 0.15 = 16256.25, BV = 92118.75. Loss = 92118.75 - 87000 = 5118.75, rounded to 5119.

BV after 3 years = 92118.75 (calculated in previous step). Sale price = 97000. Profit = 97000 - 92118.75 = 4881.25, rounded to 4881.

Cost = 15000. Year 1 (July 2010-March 2011): 15000 * 0.1 * 9/12 = 1125, BV = 13875. Year 2 (2011-2012): 13875 * 0.1 = 1387.5, BV = 12487.5. Year 3 (2012-2013): 12487.5 * 0.1 = 1248.75, BV = 11238.75. Year 4 (April-June 2013): 11238.75 * 0.1 * 3/12 = 280.97, BV = 10957.78. Loss = 10957.78 - 8000 = 2957.78, rounded to 2958.

Cost = 15000. Annual depreciation = 1500. After 3 years (end of 2012), BV = 15000 - 4500 = 10500. Depreciation for 5 months (Jan-May 2013) = 1500 * 5/12 = 625. BV at sale = 10500 - 625 = 9875. Loss = 9875 - 8000 = 1875.

Total purchase = 2000 + 4000 = 6000. Closing value = 2000. Depreciable value (or amount consumed) = 6000 - 2000 = 4000.

Total cost of Computer = 10,000 + 1,000 + 500 = 11,500.

Profit.

Gross Margin is 20% on Selling Price

The machine was bought on 1st April 2000 for 80000. Depreciation (WDV 10%): Year 1: 8000, BV = 72000. Year 2: 7200, BV = 64800. Year 3 (up to 1st Oct 2002): 64800 * 0.1 * 6/12 = 3240.

This is a complex accounting problem involving a change in method and asset disposal. Following the standard solution for this specific problem set, the closing balance is 934100.