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Disposal of Asset


Disposal of asset can take place either:
  1. At the end of its useful life or
  2. During its useful life (due to obsolescence or any other abnormal factor).
If it is sold at the end of its useful life, the amount realised on account of the sale of asset as scrap should be credited to the asset account and the balance is transferred to profit and loss account.
 
In this regard the following journal entries are recorded.
  1. For sale of asset as scrap
    Bank A/c Dr.
    To Asset A/c
  2. For transfer of balance in asset account
    1. In case of profit
      Asset A/c  Dr.
      To Profit and Loss A/c
    2. In case of loss
      Profit and Loss A/c  Dr.
      To Asset A/c
In case, though, the provision for depreciation account has been in use for recording the depreciation, then before passing the above entries transfer the balance of the provision for depreciation account to the asset account by recording the following journal entry:
Provision for depreciation A/c Dr.
To Asset A/c
For example, R.S. Limited purchased a vehicle for Rs. 4, 00,000. After 4 years its salvage value is estimated at Rs. 40,000. To find out the amount of depreciation to be charged every year based on straight line basis, and show as to how the vehicle account would appear for four years assuming it is sold for Rs. 50,000 at the end when
  1. Depreciation is charged to asset account; and
  2. Provision for depreciation account is maintained.
Consider the following entries in the book of account of R.S. Limited.

Solution:
  1. When depreciation is charged to assets account​
Books of R.S. Limited
Vehicle Account
Dr.             Cr.

Date

Particulars

J.F.

Amount

Rs.

Date

Particulars

J.F.

Amount

Rs.

I year

 

 

 

 

 
 

II year

 

 

 

 

 

III year

 

 
 


IV year

 

 

Bank

 

 

 

 

 
 

Balance b/d

 

 

 


 

Balance b/d

 

 
 


Balance b/d

Profit and Loss

(Profit on sale of vehicle)

 

 

4,00,000

_________

4,00,000

_________


 

3,10,000


________

3,10,000

________

 

2,20,000

_______

2,20,000
_______

1,30,000

10,000

__________

1,40,000

__________

End of the year

 

 

 



End of the year

 

 

 

 

End of the year

 

 

 

Depreciation
Balance c/d

 

 

 
 

Depreciation
Balance c/d

 

 

 


Depreciation

Balance c/d

 

 

 

Depreciation

Bank

 

 

 

90,000

3,10,000

________

4,00,000 ________


90,000

2,20,000
________

3,10,000

_________

 

90,000

1,30,000

________

2,20,000

________

99,000

50,000

________

1,40,000

________

  1. When Provision for depreciation account is maintained.

Books of R.S. Limited
Vehicle Account

Dr.             Cr.

Date

Particulars

J.F.

Amount

Rs.

Date

Particulars

J.F.

Amount

Rs.

I year

 

 

 

 

II year

 

 

 

 

III year

 

 

 

 


IV year

 

 

Bank

 

 

 

 

Balance b/d

 

 

 

Balance b/d

 

 

 


Balance b/d

Profit and Loss

( Profit on sale of vehicle)

 

 

4,00,000

_________

4,00,000

_________

 

4,00,000

________

4,00,000

_________

 

4,00,000

_______

4,00,000

________

4,00,000

10,000

__________

4,10,000

__________

End of the year

 

 

 

 


End of the year

 

 

 


End of the year

 

 

Balance c/d

 

 

 

 

 

Balance c/d

 

 

 

 

Balance c/d

 

 

 

 

Provision for Depreciation

Bank

 

 

4,00,000

________

4,00,000 ________

 

4,00,000

_______

4,00,000

_________

4,00,000

________

4,00,000

________

3,60,000


50,000

_________

4,10,000

________


Provision for Depreciation

Dr.             Cr.

Date

Particulars

J.F.

Amount

Rs.

Date

Particulars

J.F.

Amount

Rs.

I year

 

 

 

 

 

II year

 

 

 

 


III year

 

 

 

 

 

IV year

 

 

 

Bank

 

 

 

 

Balance b/d

 

 

 


Balance b/d

 

 

 

 

Machinery

 

 

 

90,000

_________

90,000

_________

 

 

1,80,000

________

1,80,000

_________

 

2,70,000



_______

2,70,000

________

3,60,000





__________

3,60,000

__________

End of the year

 

 

 

 

 



End of the year

 

 

 

 


End of the year

 

 

 

Depreciation

 

 

 



Balance c/d

Depreciation

 

 

 


Balance c/d

Depreciation

 

 

 

 

Balance c/d

 

Provision for Depreciation

Bank

 

 

 

90,000

________

90,000 ________




90,000

90,000

_______

1,80,000

________
1,80,000

90,000
________

2,70,000

________

2,70,000

90,000



_________

3,60,000

________





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