Principles of Accounting: Disposal of Fixed Assets Example

////Principles of Accounting: Disposal of Fixed Assets Example

Principles of Accounting: Disposal of Fixed Assets Example

ZIMSEC O Level Principles of Accounts Notes: Disposal of Fixed Assets Example

  • Now that we have looked at the entries required to record depreciation
  • It is time to look at a simple example:

A business whose financial year ends at 31 December purchased on 1 January 20X7 a machine for $5,000. The machine was to be depreciated by ten equal instalments. On 4 January 20X9 the machine was sold for $3,760.Ignoring any depreciation in the year of sale, show the relevant entries for each of the following accounts for the years ended 31 December 20X7, 20X8 and 20X9:

  1. Machinery
  2. Provision for depreciation of machinery
  3. Machinery disposals
  4. Profit and loss

Solution

a) Machinery Account

Machinery Account
20x720x7
DateDetailsAmount($)DateDetailsAmount($)
1 JanuaryCash/Bank

5000

31 DecemberBalance c/d

5000

20x820x8
1 JanuaryBalance b/d

5000

31 DecemberBalance c/d

5000

20x920x9
1 JanuaryBalance b/d

5000

4 JanuaryMachinery disposal

5000

b) Provision for depreciation of machinery

Machinery Accumulated Depreciation Account
20x720x7
31 DecemberBalance c/d

500

31 DecemberProfit and Loss

500

20x820x8
31 DecemberBalance c/d10001 JanuaryBalance b/d500
31 DecemberProfit and Loss500

1000

1000

20x920x9
4 JanuaryMachinery Disposal

1000

1 JanuaryBalance b/d

1000

c) Machinery Disposal Account

Machinery Disposal Account
20x920x9
4 JanuaryMachinery50004 JanuaryDepreciation1000
4 JanuaryCash/Bank3760
4 JanuaryProfit and Loss (Loss on disposal)240

5000

5000

d) Profit and Loss (Income Statement) extract

Less Expenses
Loss on disposal240

To access more topics go to the Principles of Accounting Notes.

By |2017-08-29T14:00:34+00:00August 29th, 2017|Notes, Ordinary Level Notes, Principles of Accounts Notes|Comments Off on Principles of Accounting: Disposal of Fixed Assets Example

About the Author:

He holds an Honours in Accountancy degree from the University of Zimbabwe. He is passionate about technology and its practical application in today's world.
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