A couple of basic slides that summarizes what you need to know about asset disposal. Enjoy!

1. ASSET DISPOSAL
DIARY OF AN ACCOUNTANT

2. QUESTIONS PEOPLE ASK
• What does a disposal of asset mean?
• Why do we dispose our assets?
• What are the journal entries for assets disposal?
• What are the impacts of asset disposal on cash flow
statement?

3. • What does a disposal
of asset mean?
• We dispose an asset when
we completely remove the
asset from our accounting
books. These assets are
usually long term in nature

4. WHY DO WE DISPOSE ASSETS?
• Because it is fully depreciated
• Because it is sold and no longer useful
• To avoid theft or unforeseen circumstances

5. WHAT ARE THE JOURNAL ENTRIES FOR ASSET
DISPOSAL?
• Disposal of a fully depreciated asset:
DR Accumulate depreciation to reverse and nil off the
initial depreciation charges. CR the asset to nil off the
value of the assets from the books.
• Example: Kenlil Nig Ltd estimated a Motor Vehicle
useful life is three years. The annual depreciation
expense is N1,000.00 At the end of the third year, the
Motor Vehicle is fully depreciated, and the asset must
be disposed of.

6. • Disposal by sale of asset with gain: Suppose that at the
end of the second year, Kenlily decided to sell the
machinery to another company. At that time, the
accumulated depreciation was $2,000. Therefore, the
total book value of the machinery was $1,000
(machinery value minus accumulated depreciation).
However, the company agreed to sell the machinery for
$1,500. Thus, Kenlilymust recognize the gain from the
sale. The journal entry for the disposal should be:

7. • Disposal by sale of asset with Loss: Let’s consider the
same situation as in previous slide but the selling price
was only $500. Thus, there was a loss on the sale.
The journal entries should be adjusted like below:

8. IMPACT OF ASSET
DISPOSAL ON
CASHFLOW
• Asset Sales proceeds are
recorded in the Investing
section of your cashflow
• Gains or losses asset
disposals are recorded in
the operating section of
your cashflow
• Please see next slide for
an example

9. SAY YOUR MANUFACTURING COMPANY OWNS A FORKLIFT. YOUR BALANCE
SHEET SHOWS AN ORIGINAL VALUE OF $15,000 AND ACCUMULATED
DEPRECIATION OF $10,000. THUS, THE NET BOOK VALUE FOR THE FORKLIFT
SHOWN ON YOUR BALANCE SHEET IS $5,000. YOU SELL THE FORKLIFT FOR
$7,000. TO RECORD THIS TRANSACTION, YOU SHOW PROCEEDS FROM THE
SALE OF THE FORKLIFT OF $7,000 UNDER INVESTING ACTIVITY. UNDER
OPERATING ACTIVITY, YOU DEDUCT GAIN ON THE SALE OF THE FORKLIFT
OF $2,000, BECAUSE THE $2,000 FROM THE GAIN ON SALE IS ALREADY
INCLUDED IN THE NET INCOME SHOWN AT THE TOP OF THE OPERATING
SECTION. THE NET INCREASE IN CASH FROM THIS TRANSACTION IS $7,000.

10. –LILIAN OKOYE
“Your assets are your employees. Invest more on
those performing well. Let non performers go.”