Disposal of non-current assets

Disposal of non-current assets

Well Howdy!

It's been a while since I 'blogged' but, like Freddie Kruger, I'm back!

I though in this article, I would briefly look at Disposal of non-current assets and the T-accounting needed to calculate profit.

Have a look at the Slideshow below then we'll work through an example:



So, Let's say we have a car we paid £25,000 for and over the past couple of years, we've accumulated £12,000 of depreciation against it. Today we're going to sell it for £9,000. Have we made a profit?

Step
1	Open a Disposals T-account
2	Dispose of asset	Debit Disposals £25,000	Credit Asset £25000
3	Transfer accumulated depreciation to Disposals account	Debit Disposals £12,000	Credit Accumulated depreciation £12,000
4	Record sale proceeds (if any)	Debit Bank £9,000	Credit Disposals £9,000

The Disposals T-account will look like this:

We can follow a similar process for Part-exchange.

Let's use similar figures to the last example but, instead of selling the car, we use it a part payment for a new vehicle. 

We were given a part exchange allowance of £11,000 against the purchase of a new car which cost £30,000.

Step
1	Open a Disposals T-account
2	Dispose of asset	Debit Disposals £25,000	Credit Asset £25,000
3	Transfer accumulated depreciation to Disposals account	Debit Disposals £12,000	Credit Accumulated depreciation £12,000
4	Record Part exchange	Debit Asset with part exchange allowance £11,000	Credit Disposals with part exchange allowance £11,000
		Debit Asset with amount paid £19,000	Credit Bank/Loan with amount paid £19,000

The T-account for Disposals look like this:

Remember, when balancing off the T-account, if the debits outweigh the credits, you have a loss on disposal, whilst credits exceeding debits mean you have a profit on disposal.

I some tasks, you may have to calculate the accumulated depreciation - remember to RTFQ (Read The Full Question). as it's so common for students to miss key information.

I hope this little article helps.

Until next time