(39)-LEDGER ACCOUNTING ENTRIES FOR THE FIXED ASSET DISPOSALS

Ledger Accounting entries for the Fixed Asset Disposals

A profit on disposal is an item of other income in the profit and loss account, and a loss on disposal is an item of expense in the profit and loss account.

It is customary in ledger accounting to record the disposal of fixed assets in a disposal of fixed asset account. The profit or loss on disposal is the difference between,

• The sale price of the asset, and
• The net book value of the asset at the time of sale.

The relevant items which must appear in the disposal of fixed assets account are therefore,

• The value of the asset, at cost or revalued amount.
• The accumulated depreciation up to the date of sale.
• The sale price of the asset.

For the disposal of fixed assets; ledger accounting entries are as follows,

1. Transfer the cost of fixed asset, to disposal of fixed asset account.
   Disposal of fixed asset account --Debit
   Fixed asset account --Credit
2. Transfer the accumulated depreciation on the asset as at the date of sale.
   Provision for depreciation account --Debit
   Disposal of fixed asset account --Credit
3. Transfer the sale price of the asset. The sale is therefore not recorded in a sales account, but in the disposal of fixed asset account itself.
   Debtor account or cash book --Debit
   Disposal of fixed asset account --Credit
4. The balance on the disposal account is the profit or loss on disposal and the corresponding double entry is recorded in the profit and loss account,
   • If loss
   Profit and loss account --Debit
   Disposal of fixed asset account --Credit
   • If profit
   Disposal of fixed account --Debit
   Profit and loss account --Credit