03 01 05 Disposal of Non Current Assets

Question 1

What causes a gain on the disposal of an asset?

Answer 1

Sale Proceeds > Carrying Amount = Gain

The asset suffered too much depreciation during its lifetime and some of that must be credited back to the SPL

Question 2

What causes a loss on disposal of an asset?

Answer 2

Carrying Amount > Sale Proceeds = Loss

The asset was not depreciated enough during its lifetime and so an extra charge is needed on disposal of the asset

Question 3

What are the double entry journals needed (3) for the disposal of an asset?

Answer 3

1) Disposals (SPL) - Debit
Non Current Asset at cost (SOFP) - Credit

2) Non Current Asset Accumulated Depreciation (SOFP) - Debit
Disposals (SPL) - Credit

3) Bank (SOFP) - Debit
Disposals (SPL) - Credit

Question 4

What are the double entry journals (4) for the disposal of an asset as a part exchange?

Answer 4

1) Disposals (SPL) - Debit
Non Current Asset at Cost (SOFP) - Credit

2) Non Current Asset Accumulated Depreciation (SOFP) - Debit
Disposals (SPL) - Credit

3) Non Current Asset at Cost (New Asset) (SOFP) - Debit
Disposals (SPL) - Credit

4) Non Current Asset at Cost (New Asset) - Debit
Bank (SOFP) - Credit