Sale and Disposal of Non Current Assets

(To learn this chapter, it is recommended to know the chapter depreciation very well)

During the year, it may be that a firm has bought or sell its assets.

PRINCIPLE:
                         1.  Dr Disposal of non current asset's account
                              Cr Non current asset's account

The disposal and asset's accounts should be debited and credited with the cost price of the asset, that is, at the price at which it was bought.

                         2.  Dr Provision for depreciation of non current asset's account
                              Cr Disposal of non current asset's account

This transaction should be recorded with the accumulated depreciation amount.

                         3. Dr Bank / Cash account
                             Cr Disposal of non-current account

This transaction should be recorded by the amount of money received on the sale of the asset which is also known as the sales proceed.

Example:
Mr. X bought 3 motor vehicles each costing $2 000 on 1st April 2012. He depreciates his assets, 10% on cost, from the date of purchase to the date of sale. On 31st March 2014 he sold one of the motor vehicle for $800, payment received by cheque. Draw up the motor vehicles, provision for depreciation of motor vehicles and disposal of motor vehicles accounts.