Disposal of fixed assets

Plant Asset Disposal/ Disposal of non-

current assets
Lesson objectives
Students will be able to:
Correctly record the disposal of assets in the
Journal
Post disposal transactions to the ledger
accurately

Plant Asset Disposals
Companies dispose of plant assets that are no
longer useful to them.
This may be done in TWO ways:
- Retirement of fixed assets
- Sale of fixed assets
Retirement of plant assets
Case 1: Full depreciation
Hobart Company retires its computer printers, which
costs $32 000 on December 31, 2013. The
accumulated depreciation on these printers is $32 000.
Therefore the printer is fully depreciated.
Entries:
Debit: accumulated depreciation
Credit: the asset account

Show the journal entry.
Case 2. Company retires asset before it is fully
depreciated but received no cash for the scrap or
salvage value.
NB. In this case a loss has occurred.
Sunset Company discards delivery equipment
that cost $18 000 and has accumulated
depreciation of $14 000.

Show the journal entries

(see file for solution)
Sale of plant assets
In a disposal by sale (for cash), the company
compares the book value of the asset with the
proceeds received from the sale.
If the proceeds of the sale exceed the book
value of the plant asset, a gain on disposal
occurs.
If the proceeds of the sale are less than the
book value of the fixed asset sold, a loss on
disposal occurs.
Gain on sale of fixed asset
Case 3.
July 1, 2014, Wright Company sells office
furniture for $16 000 cash.
The office furniture originally cost $60 000.
As of January 1, 2014, it had accumulated
depreciation of $41 000.
Depreciation for the first six months of 2014 is
$8 000. Wright records depreciation expense and
updates accumulated depreciation to July with
the following entry.
(see file for solution)
NB
Companies report a gain on disposal of plant
assets in the other revenues and gains
section of the income statement.
Loss on Sale of Fixed Asset
Case 4
Assume that Wright sells the office furniture
for $9 000.

In this case Wright computes a loss of $2 000.


(see file for solution)
NB
Companies report a loss on disposal of plant
assets in the other expenses and losses
section of the income statement.
Exercise
Overland Trucking has an old truck that cost
$30 000, and it has accumulated depreciation
of $16 000 on this truck.
Overland has decided to sell the truck.
a. What entry would Overland Trucking make to
record the sale of the truck for $17 000 cash?
b. What entry would Overland Trucking make to
record the sale of the truck for $10 000 cash?
(see file for solution)
Exercise
Napoli Manufacturing has old equipment that
cost $52 000. The equipment has accumulated
depreciation of $28 000. Napoli has decided to
sell the equipment.
Show the journal entries for each of the following
a. What entry would Napoli make to record the
sale of the equipment for $26 000 cash?
b. What entry would Napoli make to record the
sale of the equipment for $15 000 cash?