Disposal of Non-Current assets

When we sell an asset we need to remove that asset from the books.

Double entry (using a disposal account)

•          In the accounts the asset account usually has a debit balance.  The provision for depreciation has a credit balance

•          Any sale of Non-Current Assets means that Assets need a credit entry to close it and the provision for depreciation needs a debit entry to close it and fully remove the old asset from the books. The opposite entry is then put into a disposal account.   The difference between the two is needed to close the account.  This will be recorded as either profit or loss on sale of Non-Current Asset in the Income Statement.

To calculate the profit or loss

Establish the cost (1)

Establish the depreciation (2)

Deduct depreciation from cost to give the NBV

If value received for it (may be a trade in value) is higher than the NBV then it is a profit.  If it is lower than the NBV then a loss has been made.

You must state clearly if it is a profit or a loss!!

Treatment in the Income Statement

Profit on sale of Non-Current Assets is added after Gross Profit

Loss on sale of Non-Current Assets is written off as an expense

NB The reduced cost and depreciation figures go into the Balance Sheet as normal.