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Depreciation: Disposal of Fixed Assets

The document discusses depreciation and disposal of fixed assets. It provides an example of equipment purchased for Rs. 10,000 that was depreciated over 4 years and then sold before being fully depreciated for Rs. 1,500. It calculates depreciation expense up to the date of sale using the straight line method and provides the adjusting entry to record depreciation and disposal of the asset.

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Hassan Ali
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64 views

Depreciation: Disposal of Fixed Assets

The document discusses depreciation and disposal of fixed assets. It provides an example of equipment purchased for Rs. 10,000 that was depreciated over 4 years and then sold before being fully depreciated for Rs. 1,500. It calculates depreciation expense up to the date of sale using the straight line method and provides the adjusting entry to record depreciation and disposal of the asset.

Uploaded by

Hassan Ali
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Depreciation

Disposal of Fixed Assets


Disposal of fixed Assets - Not fully Depreciated
An equipment costing Rs. 10,000 was purchased on October 1 1996. The
estimated useful life was 4 years and the salvage value was 2000. On April 30,
1998 the company decided to sale this equipment because it was no longer
required. The selling price of the equipment was 1500 on that date.
The company uses straight line method for charging depreciation expense and the
closing day of the accounting year is December 31 of each year.

Required:
● Calculate the depreciation expense upto April 30, 1998
● Give adjusting entries to record depreciation expense
● Pass Adjusting entry on April 30 1998 for disposal of equipment.
Solution:
Computation of depreciation expense using straight line method
Annual depreciation expense = Cost - Salvage value = 10,000 - 2000
Estimated life in years 4

= Rs 2000 per annum

Depreciation Accumulated
expense Depreciation

December 31 1996 2000 x (3/12) 500 500

December 31 1997 2000 2500

April 30 1998 2000 x (4/12) 667 3167


Adjusting and Journal entries
Date Description Ref. Debit Credit

October 1, Plant Machine 10,000


1996 Cash 10,000
(to record purchase of equipment)

December Depreciation expense 500


31, 1996 Allowances for depreciation 500
(to record depreciation expense for the year)

December Depreciation expense 2,000


31, 1997 Allowances for depreciation 2,000
(to record depreciation expense for the year)

April 30, Depreciation expense 667


1998 Allowances for depreciation 667
(to record depreciation expense for 4 months)

Cash 1500
Allowances for depreciation 3167
Loss on Disposal 5,333
Plant Machine (original cost) 10,000
(to write off equipment a/c)
Calculation of Gain or Loss on disposal:
Cost of Plant machine (old) 10,000
Less: Accumulated depreciation (3,167)
Book Value of old Machine 6,833
Less: Sale on Cash (1,500)
Loss on disposal 5,333
Class Practice Q
An equipment costing Rs. 70,000 was purchased on March 1 1999. The estimated
useful life was 8 years and the salvage value was 6,000. On April 30 2003 the
company decided to sale this equipment because it was no longer required. Cash
of Rs. 50,000 was received on the sale of this equipment.
Use straight line method, the closing day of the financial accounting year is
December 31 of each year.
Required:
● Calculate depreciation expense upto April 30 2003
● Pass adjusting entry on April 30 2003 for disposal of equipment
Solution:
Computation of depreciation expense using straight line method
Annual depreciation expense = Cost - Salvage value = 70,000 - 6000
Estimated life in years 8

= Rs ? per annum

Depreciation expense Accumulated


Depreciation

December 31 1999

December 31 2000

December 31 2001

December 31 2002

April 30 2003
Calculation of Gain or Loss on disposal:
Adjusting Entry for disposal of Asset
Practice questions will be available on LMS

THE END

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