6: Non-current assets and depreciation

Question 1

What is the calculation for profit / loss on disposal of a fixed asset?

Answer 1

Proceeds less carrying amount = profit / (loss)

Question 2

What are the double entries to record a the disposal of a fixed asset and where is the profit or loss shown?

Answer 2

1. Remove fixed asset from SFP

Cr Non current assets
Dr Disposals

2. Remove the accumulated depreciation from the SFP

Dr Accumulated depreciation
Cr Disposals

3. Record the sale and cash received

Dr Cash
Cr Disposals

4. Balance the disposals account.

If the balance shows a debit balance, this is a profit on disposal
If the balance shows a credit balance, this is a loss on disposal

Question 3

What are the double entries to record a disposal through a part exchange agreement? (Hint: First two double entries are exactly the same as a normal disposal)

Answer 3

1. Remove fixed asset from SFP

Cr Non current assets
Dr Disposals

2. Remove accumulated depreciation from SFP

Dr Accumulated depreciation
Cr Disposals

3. Record the proceeds of the part exchange allowance (recording the cost of the new asset that we exchanged for)

Dr Non current assets
Cr Disposals

4. Record the remaining amount payable for the new asset (the acquisition of the asset)

Dr Non current assets
Cr Cash / Payables

5. Balance the Disposals account