Disposal of Fixed Assets

Disposal of fixed assets in accounts

Do you want to know how to deal with your disposal of Fixed Assets? There can be many reasons for disposing or selling a fixed asset these include theft, sales, broken or withdrawn from use.

At the year-end, you will need to complete a fixed asset audit to ensure that all fixed assets are still available in use. By completing the audit you may find assets that have disappeared.

Below we will show an example on how to account for the disposal of a fixed asset.

How to account for the disposal of a Fixed Asset

If a fixed asset is no longer in use or missing then the fixed asset value will need to be adjusted. To calculate this figure you will need to know the asset date of purchase, cost price and the total depreciation posted to date. The figures available are then used in the formula below to calculate the value remaining on the balance sheet.

Cost of a fixed asset – accumulated depreciation = value of the fixed asset in the accounts

The remaining value of the fixed asset needs to be shown as an expense on the profit and loss account and reducing the fixed asset value in the balance sheet. This is completed by creating a journal for double-entry bookkeeping, as shown below in the example.

Disposal of Fixed Assets Example

A company owns a computer which cost them £360 from new. They have had the computer for 6 months and depreciated £10 per month the computer is now broken and beyond repair. The business uses the straight-line method for all their computer equipment. The depreciation is, therefore, six months at £10 per month.

Cost of a fixed asset – accumulated depreciation = value of fixed asset

£360 (cost of fixed asset) – £60 (accumulated depreciation) = £300 (value of the fixed asset) loss of fixed asset to be posted to the P&L account.

Entries to be completed to the accounts:

  • Reduce Fixed Asset £360
  • Reduce accumulated depreciation £60
  • Post to P&L Expense £300

The balance sheet before the adjustment will show £360 as the fixed asset cost and £60 as accumulated depreciation as below.

Disposal of Fixed Assets Journal Entry

From the example above the journal entry will look like this:

Disposal of fxed assets journal example

The above example is from Xero, but all accounting packages have journal entries. If you need a journal entry form, one is available from the website for free download.

How to account for the sale of a fixed asset

If you sell a fixed asset you will need to find out the original cost price and the total accumulated depreciation to date (the total amount depreciated over the period of time that the asset has been owned). This figure will give you the value of the fixed asset at the point of sale.

Cost Price of Asset – Accumulated depreciation = value of a fixed asset

To calculate whether you have made a profit or loss on the sale of the asset, take the value of the asset away from the sales figure. If it is a positive figure it is a profit if it is negative it is a loss. This figure will need to be posted to the Profit & Loss account.

Sale of Fixed Asset Example

A company owns a computer which cost them £360 from new. They have had the computer for 6 months and depreciated £10 per month. They sell the computer for £200

The value of the fixed asset is £360 – (6x£10) = £300

Sales price – Value of Asset = £200 – £300 = -£100 this is shown as a £100 Expense or loss on the Profit and Loss account.

Entries to be completed to the accounts:

  • Reduce Fixed Assets by £360
  • Reduce Accumulated depreciation by £60
  • Increase bank balance by £200
  • Post to Profit &Loss Expense £100

A further example of disposal of fixed assets is available on the accounting coach website.

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