17.8 Sale of non-current assets
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The document summarizes the accounting steps for recording the sale of a non-current asset: 1) Transfer the historical cost of the asset to the Disposal of Asset account. 2) Transfer the accumulated depreciation of the asset to the Disposal of Asset account. 3) Record the proceeds from the sale of the asset in the Disposal of Asset account. 4) Close the Disposal of Asset account to either the Profit on Disposal account if a gain results, or the Loss on Disposal account if a loss results from the difference between the carrying value and sale proceeds.
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17.8 Sale of non-current assets
- 2. © Michael Allison, Trinity Grammar School. Author’s permission required for external use 17.8 SALE OF NON-CURRENT ASSETS The steps… Step 1: Transfer the historical cost of the asset to the Disposal of Asset account Step 2: Transfer the Accumulated Depreciation of the asset to the Disposal of Asset account Step 3: Record the proceeds of the sale of the asset in the Disposal of Asset account Step 4: Close off the Disposal of Asset account to: • Profit on Disposal of Equipment account OR • Loss on Disposal of Equipment account Sale of Non-Current Assets
- 3. © Michael Allison, Trinity Grammar School. Author’s permission required for external use 17.8 SALE OF NON-CURRENT ASSETS 2015 2016 2017 Cost $40,000 $9,000 $7,000 $4,000 Carrying Value $31,000 Carrying Value $24,000 Carrying Value $20,000 Sold for $15,000 here… $40,000 $0 Carrying value $20,000 Sold for $15,000 Loss on Disposal $5,000 Under-depreciated by $5,000 Delivery Van [A] 31/12 Balance 40000 Accumulated Dep’n – Laptop [-A] 2015 Dep’n – Van 9000 2016 Dep’n – Van 7000 2017 Dep’n – Van 4000 Cash [A] 31/12 Balance 15000 Accumulated Dep’n – Laptop [-A] 2015 Dep’n – Van 9000 2016 Dep’n – Van 7000 2017 Dep’n – Van 4000 Accumulated Dep’n – Laptop [-A] 2015 Dep’n – Van 9000 2016 Dep’n – Van 7000 2017 Dep’n – Van 4000
- 4. © Michael Allison, Trinity Grammar School. Author’s permission required for external use Step 1: Transfer the historical cost of the asset to the Disposal of Asset account 17.8 SALE OF NON-CURRENT ASSETS General Journal Date Details General Ledger Subsidiary Ledger Debit Credit Debit Credit 31 Dec 17 Disposal of delivery van 40000 Delivery van 40000 Delivery Van [A] 31/12 Balance 40000 31/12 Disposal of delivery van 40000 Disposal of Delivery Van 31/12 Delivery van 40000 General Journal Date Details General Ledger Subsidiary Ledger Debit Credit Debit Credit 31 Dec 17 Disposal of delivery van 40000 Delivery van 40000 Disposal of Delivery Van 31/12 Delivery van 40000 General Journal Date Details General Ledger Subsidiary Ledger Debit Credit Debit Credit 31 Dec 17 Disposal of delivery van 40000 Delivery van 40000 Delivery Van [A] 31/12 Balance 40000 31/12 Disposal of delivery van 40000 Delivery Van [A] 31/12 Balance 40000 31/12 Disposal of delivery van 40000 40000 40000
- 5. © Michael Allison, Trinity Grammar School. Author’s permission required for external use Step 2: Transfer the Accumulated Depreciation of the asset to the Disposal of Asset account 17.8 SALE OF NON-CURRENT ASSETS General Journal Date Details General Ledger Subsidiary Ledger Debit Credit Debit Credit 31 Dec 17 Accumulated dep’n – Delivery van 20000 Disposal of delivery van 20000 Accumulated Depreciation – Delivery Van [-A] 2015 Depreciation – Delivery Van 9000 2016 Depreciation – Delivery Van 7000 2017 Depreciation – Delivery Van 4000 Disposal of Delivery Van 31/12 Delivery van 40000 General Journal Date Details General Ledger Subsidiary Ledger Debit Credit Debit Credit 31 Dec 17 Accumulated dep’n – Delivery van 20000 Disposal of delivery van 20000 Accumulated Depreciation – Delivery Van [-A] 2015 Depreciation – Delivery Van 9000 2016 Depreciation – Delivery Van 7000 31/12 Disposal of delivery van 20000 2017 Depreciation – Delivery Van 4000 General Journal Date Details General Ledger Subsidiary Ledger Debit Credit Debit Credit 31 Dec 17 Accumulated dep’n – Delivery van 20000 Disposal of delivery van 20000 Disposal of Delivery Van 31/12 Delivery van 40000 31/12 Acc dep’n – Delivery van 20000 Accumulated Depreciation – Delivery Van [-A] 2015 Depreciation – Delivery Van 9000 2016 Depreciation – Delivery Van 7000 31/12 Disposal of delivery van 20000 2017 Depreciation – Delivery Van 4000 20000 20000
- 6. © Michael Allison, Trinity Grammar School. Author’s permission required for external use 17.8 SALE OF NON-CURRENT ASSETS Step 3: Record the proceeds of the sale of the asset in the Disposal of Asset account Cash Receipts Journal Date Details Receipt No. Bank Debtors Control Cost of Sales Sales Sundries GST 31 Dec 17 Disposal of delivery van 21 15000 15000 Disposal of Delivery Van 31/12 Delivery van 40000 31/12 Acc dep’n – Delivery van 20000 31/12 Bank 15000 Bank [A] 31/12 Disposal of delivery van 15000 31/12 Disposal of delivery van 40000 Cash Receipts Journal Date Details Receipt No. Bank Debtors Control Cost of Sales Sales Sundries GST 31 Dec 17 Disposal of delivery van 21 15000 15000 Cash Receipts Journal Date Details Receipt No. Bank Debtors Control Cost of Sales Sales Sundries GST 31 Dec 17 Disposal of delivery van 21 15000 15000 Cash Receipts Journal Date Details Receipt No. Bank Debtors Control Cost of Sales Sales Sundries GST 31 Dec 17 Disposal of delivery van 21 15000 15000 Cash Receipts Journal Date Details Receipt No. Bank Debtors Control Cost of Sales Sales Sundries GST 31 Dec 17 Disposal of delivery van 21 15000 15000 Bank [A] 31/12 Disposal of delivery van 15000 31/12 Disposal of delivery van 40000 Cash Receipts Journal Date Details Receipt No. Bank Debtors Control Cost of Sales Sales Sundries GST 31 Dec 17 Disposal of delivery van 21 15000 15000 Disposal of Delivery Van 31/12 Delivery van 40000 31/12 Acc dep’n – Delivery van 20000 31/12 Bank 15000
- 7. © Michael Allison, Trinity Grammar School. Author’s permission required for external use Step 4: Close off the Disposal of Asset account to: • Profit on Disposal of Equipment account OR • Loss on Disposal of Equipment account 17.8 SALE OF NON-CURRENT ASSETS $40,000 $0 Carrying value $20,000 Sold for $15,000 Loss on Disposal $5,000 Under-depreciated by $5,000 Disposal of Delivery Van 31/12 Delivery van 40000 31/12 Acc dep’n – Delivery van 20000 31/12 Bank 15000 31/12 Loss on disposal of del. van 5000 Loss on Disposal of Delivery Van [E] 31/12 Disposal of delivery van 5000 31/12 Disposal of delivery van 40000 General Journal Date Details General Ledger Subsidiary Ledger Debit Credit Debit Credit 31 Dec 17 Loss on disposal of delivery van 5000 Disposal of delivery van 5000 General Journal Date Details General Ledger Subsidiary Ledger Debit Credit Debit Credit 31 Dec 17 Loss on disposal of delivery van 5000 Disposal of delivery van 5000 Loss on Disposal of Delivery Van [E] 31/12 Disposal of delivery van 5000 31/12 Disposal of delivery van 40000 General Journal Date Details General Ledger Subsidiary Ledger Debit Credit Debit Credit 31 Dec 17 Loss on disposal of delivery van 5000 Disposal of delivery van 5000 Disposal of Delivery Van 31/12 Delivery van 40000 31/12 Acc dep’n – Delivery van 20000 31/12 Bank 15000 31/12 Loss on disposal of del. van 5000 Loss on Disposal of Delivery Van [E] 31/12 Disposal of delivery van 5000 31/12 Profit and loss summary 5000 5000 5000 Disposal of Delivery Van 31/12 Delivery van 40000 31/12 Acc dep’n – Delivery van 20000 31/12 Bank 15000 31/12 Loss on disposal of del. van 5000 40000 40000 Cost $40,000 Carrying value $20,000
- 8. © Michael Allison, Trinity Grammar School. Author’s permission required for external use 17.8 SALE OF NON-CURRENT ASSETS Income Statement Revenue $ $ Sales 100000 less Cost of Goods Sold 25000 Gross Profit 70000 less Other Expenses Rent 10000 Wages 35000 Loss on disposal on van 5000 60000 Net Profit 10000 Income Statement Revenue $ $ Sales 100000 less Cost of Goods Sold 25000 Gross Profit 70000 less Other Expenses Rent 10000 Wages 35000 Loss on disposal on van 15000 60000 Net Profit 10000 “Loss on disposal” is recorded in Other Expenses Loss on Disposal of Delivery Van [E] 31/12 Disposal of delivery van 5000 31/12 Profit and loss summary 5000 5000 5000
- 9. © Michael Allison, Trinity Grammar School. Author’s permission required for external use TASK In-class Homework Ex17.3 X Ex17.4 X Ex17.5 X