Disposal of capital assets

Disposal account

Disposal account is the account which is used to make all of the entries relating to the disposal of the asset and also determines p+L on disposal

Profit and Loss

• if disposal is greater than carrying amount profit

• If disposal is less than carrying amount a loss has been made

Steps to disposing non current asset

1. Dr disposal ledger

   cr non current asset cost

2. Dr non current asset acc depreciation

   cr disposal ledger account

3. Dr bank/recieveables

   cr disposal ledger account

4. Balance ledger accounts and calculate p+l on disposal

Part exchange deal value

• effectively the sale proceeds of the old asset

• Part of the full cost of the new asset together with the balance paid

Steps to disposing of a non current asset thought part exchange

1. Dr disposal ledger account

   cr non current asset cost account

2. Dr non current asset accumulated depreciation account

   cr disposal ledger account

3. Dr non current asset cost account

   Cr disposal ledger account

4. Dr non current asset cost account

   cr bank/payables

5. Balance off ledger accounts and calculate whether p+l has been made on the part exchange

Requirements of authorising disposals

• date of purchase

• Date of disposal

• Description of asset

• Reason for disposal

• Original cost

• Accumulated depreciation

• Sale proceeds

• Authorisation