Cambridge IGCSE Accounting(0452)/O Level Principles of Accounts(7110) Notes: Disposal of Fixed Assets Example

  • Now that we have looked at the entries required to record depreciation
  • It is time to look at a simple example:

A business whose financial year ends at 31 December purchased on 1 January 20X7 a machine for $5,000. The machine was to be depreciated by ten equal instalments. On 4 January 20X9 the machine was sold for $3,760.Ignoring any depreciation in the year of sale, show the relevant entries for each of the following accounts for the years ended 31 December 20X7, 20X8 and 20X9:

  1. Machinery
  2. Provision for depreciation of machinery
  3. Machinery disposals
  4. Profit and loss

Solution

a) Machinery Account

Machinery Account
20x720x7
DateDetailsAmount($)DateDetailsAmount($)
1 JanuaryCash/Bank

5000

31 DecemberBalance c/d

5000

20x820x8
1 JanuaryBalance b/d

5000

31 DecemberBalance c/d

5000

20x920x9
1 JanuaryBalance b/d

5000

4 JanuaryMachinery disposal

5000

b) Provision for depreciation of machinery

Machinery Accumulated Depreciation Account
20x720x7
31 DecemberBalance c/d

500

31 DecemberProfit and Loss

500

20x820x8
31 DecemberBalance c/d10001 JanuaryBalance b/d500
31 DecemberProfit and Loss500

1000

1000

20x920x9
4 JanuaryMachinery Disposal

1000

1 JanuaryBalance b/d

1000

c) Machinery Disposal Account

Machinery Disposal Account
20x920x9
4 JanuaryMachinery50004 JanuaryDepreciation1000
4 JanuaryCash/Bank3760
4 JanuaryProfit and Loss (Loss on disposal)240

5000

5000

d) Profit and Loss (Income Statement) extract

Less Expenses
Loss on disposal240

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