Accounting for depreciation and disposal of fixed assets pdf

If the asset is traded in, sold on credit, or destroyed and an insurance claim is made , the account of the supplier of the new machine, the debtor, or the insurance company is debited. Also, the disposal of fixed assets account is credited with the agreed value of the item.

After making the above-mentioned entries, the disposal of fixed assets account shows a debit or credit balance. If it shows a debit balance, this denotes a loss on the disposal of the fixed asset. Like all expense accounts, this debit balance should be transferred to the debit of profit and loss account at the end of the year.

If, on the other hand, the disposal of fixed assets account shows a credit balance, this denotes a gain or profit on the sale of the fixed asset. This should be credited to the profit and loss account as an ancillary income also known as other income or non-operating income at the end of the year. The KLM company has several motor vehicles. On 5 March , Motor Vehicle No. To learn more about True, visit his personal website , view his author profile on Amazon , his interview on CBS , or check out his speaker profile on the CFA Institute website.

If a fixed asset is sold, or otherwise disposed of, the following accounting entries are made to record the relevant transactions:.

The KLM company has several motor vehicles. The figure 13, is obtained by working out depreciation on the remaining balance of motor vehicle after unrecognizing the asset sold.. If there are no disposals in a year, the depreciation charge for the year is equivalent to closing accumulated depreciation less the cloding balance for the previous year.

What happens to depreciation charge when there are disposals in a particular year? The Property, plant, equipment and other assets guide discusses the accounting for acquisition transactions determined to be asset acquisitions under US GAAP.

Wondering how to account for operating leases in an acquisition? Read here to find out in our updated FAQ. Learn how customer accounting for costs related to a cloud computing arrangement is changing. Hear PwC discuss the different accounting models and financial statement presentation for software costs. The new guidance for accounting for cloud computing costs impacts more than just technology companies. Disposal of fixed assets is accounted for by removing cost of the asset and any related accumulated depreciation and accumulated impairment losses from balance sheet, recording receipt of cash and recognizing any resulting gain or loss in income statement.

A company may need to de-recognize a fixed asset either upon sale of the asset to another party or when the asset is no longer operational and is disposed of. At the time of disposal of any of its fixed asset, a company must update the asset's book value by recording any partial-year depreciation associated with the disposal year. It is because whether a gain or loss arises on disposal depends on whether the cash proceeds if any from the sale are higher than the carrying amount of the asset at the time of disposal.