IGCSE Disposal of Non-Current Asset
We will learn how to account for the sale of a non-current asset. This includes calculating the asset’s net book value at the date of sale, recording depreciation up to the date of disposal, and determining the profit or loss on disposal. We will also learn to record the sales in the journal and ledger account.
Related Lessons:
Calculating Gain or Loss on Sale
To determine if the business make a gain or a loss on the sale of its non-current asset:
Firstly, we calculate the net book value of the said asset.
Net book value = Cost of asset – Accumulated depreciation of asset
Secondly, we compare the selling price to the net book value of the asset.
Selling price > Net book value = Gain
Selling price < Net book value = Loss
Profit on sale of non-current asset is recorded as Income in the Incoe Statement, while Loss on sale of non-current asset is recorded as an Expense.
Recording Sale of Non-Current Asset in Journal and Account
The sale of non-current asset is recorded in the journal as follows:
1st – Removing cost of asset from asset account:
Dr Disposal of non-current asset
Cr Non-current asset
2nd – Removing total depreciation of asset from the account:
Dr Provision for depreciation
Cr Disposal of non-current asset
3rd – Recording selling price of asset:
Dr Cash or Bank
Cr Disposal of non-current asset
4th – Recording the profit or loss:
Profit on sale:
Dr Disposal of non-current asset
Cr Income statement
Loss on sale:
Dr Income statement
Cr Disposal of non-current asset