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Sapna Takia

Can depreciation be charged in the year of sale?


1 Answer

  1. This answer was edited.

    Charging Depreciation  in the Year of the Sale

    The answer to your question is that yes, one can charge depreciation in the year of sale.

    I guess reading the below para you will be able to interpret as to why it can be charged in the year of sale.

    First of all, what does depreciation mean?

    It is a measure of wearing out, consumption or other loss of value of a depreciable asset arising from use, effluxion of time or obsolescence through technology and market changes.

    It is allocated to charge a fair proportion of depreciable amount in each accounting period during the expected useful life of an asset.

    Thus, even in the year of the sale, the asset shall continue to wear and tear and so it shall be apt to charge the depreciation from the beginning of the accounting period till the date of its sale i.e for the period it has been used in the year of sale.

    I guess the below example will be of great help for you –

    The book value of an asset as on 01 /01/ XXXX is 70,000 depreciation is charged on an asset @ 10%. on 01/07/xxxx the asset is sold for an amount of 35,000.

    The accounting treatment for the same shall be:

    Charging depreciation of an amount of 3,500 (70,000 x 10% x 6/12) for 6 months i.e for the period in use (from 01/01 to 30/06):

    Depreciation A/cDebit3,500Debit the increase in expenses.
    To Asset A/cCredit3,500Credit the decrease in an asset.

    Now at the time of sale, the entity shall record a loss of 31,500 which is nothing but the difference between the written down value and the value of sale proceeds as shown below:

    Loss on Sale of Asset A/cDebit31,500Debit the decrease in revenue.
    Cash A/cDebit35,000Debit the increase in an asset.
    To Asset A/cCredit66,500Credit the decrease in an asset.

    I believe now you understand as to why we should charge depreciation in the year of sale as well and also the above example will help you understand the accounting treatment for the same as well.

    Aastha Mehta

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