What is Asset Disposal Account?


Asset Disposal Account

When an asset is being sold, a new account in the name of “Asset Disposal Account” is created in the ledger. This account is primarily created to ascertain profit on the sale of fixed assets or loss on sale of fixed assets. The difference between the amount received from sale proceeds and net current value of the fixed asset being disposed of determines profit or loss. This amount is shown on the income statement.

The account is termed as “Profit (or) Loss on sale of Asset” If an asset is sold at a price higher than its written down value it is said to have produced a profit. Similarly, if an asset is sold at a price lower than its written down value it is said to have incurred a loss.

Journal Entries for Disposal of Fixed Assets – With Provision for Depreciation

  • Gross amount of asset being sold is transferred to Asset Disposal Account (at original cost)

Debit asset disposal account and credit asset account

Debit Provision for Depreciation Account and Credit Asset Disposal

  • To record the value of proceeds received from sale of asset

Debit bank and credit asset disposal account

  • In case of Profit

Debit asset disposal account and credit profit and loss

  • In case of Loss

Debit profit and loss and credit asset disposal account

If an “Asset Disposal” account shows debit balance it means loss has been incurred on disposal of fixed asset whereas credit balance in the account shows profit earned on disposal.


Related Article – Journal entry of loss on sale of fixed assets

Journal Entries for Disposal of Fixed Assets – Without Provision for Depreciation

  • Gross amount of asset being sold is transferred to Asset Disposal Account (at written down value calculated at the beginning of year of sale)

Debit asset disposal account and credit asset account

  • Depreciation is charged from the beginning of year till date of sale per the below journal entry

Debit depreciation account and credit asset disposal

  • To record the value of proceeds received from sale of asset

Debit bank and credit asset disposal account

  • In case of Profit

Debit asset disposal account and credit profit and loss

  • In case of Loss

Debit profit and loss and credit asset disposal account

 

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