ZIMSEC O Level Principles of Accounts 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 $3,760.Ignoring any depreciation in the year of sale, show the relevant entries for each of the following accounts for the years ended 31 December 20X7, 20X8 and 20X9:
- Machinery
- Provision for depreciation of machinery
- Machinery disposals
- Profit and loss
Solution
a) Machinery Account
| Machinery Account | ||||||
| 20x7 | 20x7 | |||||
| Date | Details | Amount($) | Date | Details | Amount($) | |
| 1 January | Cash/Bank | 5000 | 31 December | Balance c/d | 5000 |
|
| 20x8 | 20x8 | |||||
| 1 January | Balance b/d | 5000 | 31 December | Balance c/d | 5000 |
|
| 20x9 | 20x9 | |||||
| 1 January | Balance b/d | 5000 | 4 January | Machinery disposal | 5000 |
|
b) Provision for depreciation of machinery
| Machinery Accumulated Depreciation Account | ||||||
| 20x7 | 20x7 | |||||
| 31 December | Balance c/d | 500 | 31 December | Profit and Loss | 500 |
|
| 20x8 | 20x8 | |||||
| 31 December | Balance c/d | 1000 | 1 January | Balance b/d | 500 | |
| 31 December | Profit and Loss | 500 | ||||
1000 | 1000 |
|||||
| 20x9 | 20x9 | |||||
| 4 January | Machinery Disposal | 1000 | 1 January | Balance b/d | 1000 |
c) Machinery Disposal Account
| Machinery Disposal Account | ||||||
| 20x9 | 20x9 | |||||
| 4 January | Machinery | 5000 | 4 January | Depreciation | 1000 | |
| 4 January | Cash/Bank | 3760 | ||||
| 4 January | Profit and Loss (Loss on disposal) | 240 | ||||
5000 | 5000 |
d) Profit and Loss (Income Statement) extract
| Less Expenses | |||
| Loss on disposal | 240 |
To access more topics go to the Principles of Accounting Notes.
