Journal Entry For Disposal of Assets Not Fully Depreciated

What is The Journal Entry Of Sale Of Fixed Assets / Non Current Assets Partially Depreciated For The Year?

When a Fixed Asset or Non-Current Asset purchased by the business disposed off or sold out in the market for cash or exchanged with the new one, then we credit such fixed asset with its historical cost and debit Accumulated Depreciation charged on it upto its use (from the date of purchase) in the business. The amount of cash received is debited and the difference of debit and credit amounts is recorded accordingly in the entry to make balance of debit and credit amounts. If the cash amount is more than the book value of fixed asset, the company gains and if less than the company faces loss on Disposal of Fixed Asset.

In a disposal account, if the credit side exceeds the debit side, then there is a gain on sale of fixed asset and if the debit side is higher than the credit side, then it is a case of loss on sale of fixed asset.

The journal entry to record for disposal of a fixed asset not fully depreciated is shown below:

(Assuming there is a Gain On Disposal of Fixed Asset)

                Accumulated Depreciation - Fixed Asset a/c  XXX

                 Cash a/c  XXX

                                                                                       Fixed Asset a/c  XXX

                                                                                       Gain On Sale of Fixed Asset a/c  XXX

                                                  (Gain On Disposal of Fixed Asset Recorded)

 

Example: ABC Company purchased Furniture & Fixture of Rs. 50000 on 1^st January, 2016. The estimated useful life of furniture is 10 years. The company charged Depreciation on straight-line method. The rate of depreciation is 10% on cost. On 1^st January, 2021, the company sold furniture & fixture in the market for Rs. 70000 as a result, the furniture & fixture is not fully depreciated. Record the disposal journal entries and also calculate Gain or Loss on Disposal.

Here:

Depreciation on Furniture & Fixture Per Year = Cost - Residual Value / Estimated Useful Life

                                                                         = 50000 - 0 / 10 = 5000

Accumulated Depreciation for 5 years (From 1^st January, 2016 To 31^st December, 2020)

                                                           5 X 5000 = Rs. 25000

Gain On Sale of Furniture & Fixture = Total of Debit - Total of Credit

                                                           = 95000 - 50000 = Rs. 45000

As we know the disposal journal entry, so we record the following entry:

                 Accumulated Depreciation - Furniture & Fixture a/c  25000

                 Cash a/c  70000

                                                                                                   Furniture & Fixture a/c  50000

                                                                                          Gain On Sale of Furniture & Fixture a/c  45000

                                              (Gain On Sale of Furniture & Fixture Recorded)

 

To calculate Gain, we can also prepare Disposal Account as shown below:

 

                                                                            ABC Company

                                                                           Disposal Account

                                                    For the Period Ending On 31^st December, 2020

                                             Rs.                                                                                                   Rs.

 

Furniture & Fixture a/c   50000            Cash a/c                                                                  70000

                                                              Accumulated Depreciation - Furniture & Fixture   25000

Gain (Balance Figure)     45000                                  

                                           ______                                                                                              ______

Total                                  95000                                                                                              95000

                                          ______                                                                                               ______

                                          ______                                                                                               ______