disposal account

Hi Rustam,

When you dispose of a non-current asset, there are three steps.

Let’s say I have car I bought for $100 on 1st January 2015. It is now 31st December 2015 and somebody is offering to buy the car from me for $80. Depreciation has been charged straight line over 2 years (So, $50 has been charged this year).

1. Remove the non-current asset from the balance sheet at the original price I bought it for.

DR Disposal Account $100
CR Non-Current Asset $100

2. Remove the accumulated depreciation balance from the balance sheet (as the asset is now gone!).

DR Accumulated Depreciation $50
CR Disposal Account $50

3. Record the actual sale of the non-current asset

DR Cash $80
CR Disposal Account $80

You can now take the closing balance on the disposal account and if it is a CR balance then you have made a profit on disposal. A DR balance would indicate a loss on disposal.

In this case, the CR balance would be $30. A profit for me!

For current assets (inventory), you’re correct.

DR Cash
CR Sales

At the year end, you’ll then deal with inventory (see John’s lecture).

Hope that helps!

Andrew