when the business needs to retire assets from the business in any manner the following steps are necessary:
1)To calculate the depreciation of the period between the last adjusting entry and the date of disposal such as last depreciation was calculated on December 31 and disposal of an assets is going to be made on April 1, then depreciation will be computed for three month during which asset has been utilized and not depreciated (January 1,to march31)and necessary journal entry will be recorded as :
April 1, Depreciation expense
Accumulated depreciation
____________________________
2) To find out the book value after deducting the last accumulated depreciation of the asset.
3)To calculate the gain or loss on disposal of that asset if the book value is more or original cost is more then the amount of disposal and accumulated depreciation then there will be loss on the disposal of that asset.If the original cost is less than the account of disposal and accumulated then there will be gain on the disposal of that asset.
ILLUSTRATION :
cost of machine is given Rs 125,000 Accumulated depreciation for the period Rs 67,000 and the agreed disposal price Rs.45,000
Required : gain or loss on disposal
original cost of machine 125,000
Less Accumulated depreciation ( 67,000)
Book value 58,000
Less sale proceed of assets (45,000)
Loss on disposal 13000_
Journal entry will be:
cash 45,000
Accumulated depreciation 67,000
loss on disposal 13,000
Machine 125,000
______________________________
If the book value of the asset is less than the proceeds of the asset,the difference is gain on disposal.
1)To calculate the depreciation of the period between the last adjusting entry and the date of disposal such as last depreciation was calculated on December 31 and disposal of an assets is going to be made on April 1, then depreciation will be computed for three month during which asset has been utilized and not depreciated (January 1,to march31)and necessary journal entry will be recorded as :
April 1, Depreciation expense
Accumulated depreciation
____________________________
2) To find out the book value after deducting the last accumulated depreciation of the asset.
3)To calculate the gain or loss on disposal of that asset if the book value is more or original cost is more then the amount of disposal and accumulated depreciation then there will be loss on the disposal of that asset.If the original cost is less than the account of disposal and accumulated then there will be gain on the disposal of that asset.
ILLUSTRATION :
cost of machine is given Rs 125,000 Accumulated depreciation for the period Rs 67,000 and the agreed disposal price Rs.45,000
Required : gain or loss on disposal
original cost of machine 125,000
Less Accumulated depreciation ( 67,000)
Book value 58,000
Less sale proceed of assets (45,000)
Loss on disposal 13000_
Journal entry will be:
cash 45,000
Accumulated depreciation 67,000
loss on disposal 13,000
Machine 125,000
______________________________
If the book value of the asset is less than the proceeds of the asset,the difference is gain on disposal.
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