Depreciation, Provisions and Reserves | Class 11 Accountancy Notes

Asset Disposal

Asset disposal refers to the process of removing an asset from the books of accounts when it is sold, scrapped, or otherwise disposed of. The accounting treatment involves removing the asset's cost and accumulated depreciation from the books and recording any profit or loss on disposal. If the asset is sold, the sale proceeds are recorded. The difference between the net book value (cost less accumulated depreciation) and the sale proceeds results in either a profit or loss on disposal, which is transferred to the Profit and Loss Account. When a provision for depreciation account is maintained, its balance is transferred to the asset account before disposal. The chapter explains these procedures with detailed journal entries, ledger accounts, and examples, including the use of an Asset Disposal Account to provide a clear view of all transactions related to the sale.

📊 Diagram: Tables on pages 27 to 29 showing Machinery Disposal Account, Provision for Depreciation Account, and journal entries for asset disposal; Figure 25 on page 24 illustrating asset disposal process.

🧪 Activity: Illustrations 7 to 9 provide detailed examples of asset disposal accounting.

🔗 Connection: Leads to understanding provisions and reserves in accounting.

Table on page 24 (5×10)

| are recorded. 1. For sale of asset as scrap Bank A/c Dr. To Asset A/c 2. For transfer of balance in asset account (a) In case of profit Asset A/c Dr. To Profit and Loss A/c (b) In case of loss Profit and Loss A/c Dr. To Asset A/c In case, however, the provision for depreciation account has been in us for recording the depreciation, then before passing the above entries transfe the balance of the provision for depreciation account to the asset account b recording the following journal entry: Provision for depreciation A/c Dr. To Asset A/c For example, R.S. Limited purchased a vehicle for 4,00,000. Afte 4 years its salvage value is estimated at 40,000. To find out the amount o depreciation to be charged every year based on straight line basis, and sho as to how the vehicle account would appear for four years assuming it is sol for 50,000 at the end when (a) depreciation is charged to asset account; and (b) provision for depreciation account is maintained. Consider the following entries in the book of account of R.S. Limited (a) When depreciation is charged to assets account Books of R.S. Limited Vehicle Account Dr. C Date Particulars J.F. Amount Date Particulars J.F. Amount ` | | | | | | | | | e r y r f w d r. |

| | Date | Particulars | J.F. | Amount | Date | Particulars | J.F. | Amount | |

| | I year | Bank | | 4,00,000 | End of the year | Depreciation Balance c/d | | | |

Table on page 25 (23×12)

| | II year III year IV | Balance b/d Balance b/d Balance b/d | | | 3,10,000 | | End of the year End of the year | Depreciation Balance c/d Depreciation Balance c/d Depreciaton | | 90,000 2,20.000 | |

| | | | | | 2,20,000 | | | | | 90,000 1,30,000 | |

| | | | | | 1,30,000 | | | | | 99,000 50,000 | | | year Profit and 10,000 Bank 50,000 loss (Profit on sale of vehicle) 1,40,000 1,40,000 (b) When Provision for depreciation account is maintained. Books of R.S. Limited Vehicle Account Dr. C Date Particulars J.F. Amount Date Particulars J.F. Amount I Bank 4,00,000 End of Balance c/d 4,00,000 year the year 4,00,000 4,00,000 II Balance b/d 4,00,000 End of Balance c/d 4,00,000 year the year 4,00,000 4,00,000 III Balance b/d 4,00,000 End of Balance c/d 4,00,000 year the year 4,00,000 4,00,000 IV Balance b/d 4,00,000 Provison for 3,60,000 year Profit and loss 10,000 depreciation (Profit on Sale Bank 50,000 of Vehicle) 4,10,000 4,10,000 Provision for Depreciation Dr. C Date Particulars J.F. Amount Date Particulars J.F. Amount | year | Profit and loss (Profit on sale of vehicle) | | | 10,000 | | | Bank | | 50,000 | |

| | Date | Particulars | | J.F. | Amount | | Date | Particulars | J.F. | Amount | | | | I year II year III year IV year | Bank Balance b/d Balance b/d Balance b/d Profit and loss (Profit on Sale of Vehicle) | | | 4,00,000 | | End of the year End of the year End of the year | Balance c/d Balance c/d Balance c/d Provison for depreciation Bank | | 4,00,000 | |

| | | | | | 4,00,000 10,000 | | | | | 3,60,000 50,000 | |

| | Date | | Particulars | J.F. | | Amount | Date | Particulars | J.F. | Amount | | | | Ist year | | Balance b/d | | | 90,000 | End of year | Depreciation | | 90,000 | |

Table on page 26 (7×10)

| | II year III year | Balance b/d Balance b/d | | 1,80,000 | End of the year End of the year | Balance c/d Depreciation Balance c/d Depreciation | | 90,000 90,000 | |

| | | | | 2,70,000 | | | | 1,80,000 90,000 | |

| IV Machinery 3,60,000 End of Balance c/d 2,70,000 year the year Provison for 90,000 Depreciation 3,60,000 3,60,000 77777.....99999.....11111 UUUUUssssseeeee ooooofffff AAAAAsssssssssseeeeettttt DDDDDiiiiissssspppppooooosssssaaaaalllll AAAAAccccccccccooooouuuuunnnnnttttt Asset disposal account is designed to provide a complete and clear view of all the transactions involved in the sale of an asset under one account head. The concerned variables are the original cost of the asset, depreciation accumulated on the asset upto date, sale price of the asset, value of the parts of the asset retained for use, if any and the resultant profit or loss on disposal. The balance of this amount is transferred to the profit and loss account. This method is generally used when a part of the asset is sold and provision for depreciation account exists. Under this method, a new account titled Asset Disposal Account is opened. The original cost of the asset being sold is debited to the asset disposal account and accumulated depreciation amount appearing in provision for depreciation account relating to that asset till the date of disposal is credited to the asset disposal account. The net amount realised from the sale of the asset is also credited to this account. The balance of asset disposal account shows profit or loss which is transferred to profit and loss account. The advantage of this method is that it gives a full picture of all the transactions related to asset disposal at one place. The journal entries required for the preparation of asset disposal account is as follows: 1. Asset Disposal A/c Dr. (with the original cost of asset, To Asset A/c being sold) 2. Provision for Depreciation A/c Dr. (with the accumulated balance in To Asset Disposal A/c provision for depreciation account) 3. Bank A/c Dr. (with the net sales proceeds) To Asset Disposal A/c | IV year | Machinery | | 3,60,000 | End of the year | Balance c/d Provison for Depreciation | | 2,70,000 90,000 | |

| | | | | | | | | | ll e d t e n . t n t o it s t t |

Table on page 27 (10×10)

| as on March 31, 2017 Machinery (gross value): 6,00,000 Provision for depreciation: 2,50,000 A machine purchased for 1,00,000 on November 01, 2013, having accumulate depreciation amounting to 60,000 was sold on April 1, 2017 for 35,000. Th Asset Disposal account will be prepared in the following manner: Books of Karan Enterprises Machinery Disposal Account Dr. C Date Particulars J.F. Amount Date Particulars L.F. Amount 2017 2017 Apr. 01 Machinery 1,00,000 Apr. 01 Provision for 60,000 depreciation Apr. 01 Bank 35,000 2018 Mar. 31 Profit & Loss (Loss on sale) 5,0001 1,00,000 1,00,000 Machinery Account Dr. C Date Particulars Amount Date Particulars Amount ` 2017 2017 April 01 Balance b/d 6,00,000 Apr. 01 Machine Disposal 1,00,000 2018 Mar. 31 Balance c/d 5,00,000 6,00,000 6,00,000 Working Notes | | | | | | | | | d e r. |

| | Date | Particulars | J.F. | Amount | Date | Particulars | L.F. | Amount | | | | 2017 Apr. 01 | Machinery | | 1,00,000 | 2017 Apr. 01 Apr. 01 2018 Mar. 31 | Provision for depreciation Bank Profit & Loss (Loss on sale) | | 60,000 35,000 5,0001 | |

| | Date | Particulars | | Amount | Date | Particulars | | Amount | | | | 2017 April 01 | Balance b/d | | 6,00,000 | 2017 Apr. 01 2018 Mar. 31 | Machine Disposal Balance c/d | | 1,00,000 5,00,000 | |

Table on page 28 (13×11)

| 2014) was sold for 18,000. A new truck costing 30,000 was purchased on October 0 2016. You are required to prepare trucks account, Provision for depreciation account an Truck disposal account for the years ended on December 2015, 2016 and 2017 assumin that the firm closes its accounts in December every year. Solution Book of Khosla Transport Co. Trucks Account Dr. C Date Particulars J.F. Amount Date Particulars J.F. Amount 2015 2015 Jan. 01 Bank 1,00,000 Dec. 31 Balance c/d 1,00,000 (Purchase of truck) 1,00,000 1,00,000 2016 2016 Jan. 01 Balance b/d 1,00,000 Jan. 01 Truck disposal 20,000 Dec 31 Balance c/d 80,000 1,00,000 1,00,000 2017 2017 Jan. 01 Balance b/d 80,000 Jul. 01 Truck disposal 20,000 Oct. 01 Bank 30,000 Dec. 31 Balance c/d 90,000 (Purchase of new truck) 1,10,000 1,10,000 Truck Disposal Account Dr. C Date Particulars J.F. Amount Date Particulars J.F. Amount 2016 2016 Jan. 01 Machinery 20,000 Jan. 01 Provision for 2,000 | | | | | | | | | | 1, d g r. |

| | Date | Particulars | J.F. | Amount | Date | Particulars | | J.F. | Amount | | | | 2015 Jan. 01 2016 Jan. 01 2017 Jan. 01 Oct. 01 | Bank (Purchase of truck) Balance b/d Balance b/d Bank (Purchase of new truck) | | 1,00,000 | 2015 Dec. 31 2016 Jan. 01 Dec 31 2017 Jul. 01 Dec. 31 | Balance c/d Truck disposal Balance c/d Truck disposal Balance c/d | | | 1,00,000 | |

| | | | | 1,00,000 | | | | | 20,000 80,000 | |

| | | | | 80,000 30,000 | | | | | 20,000 90,000 | |

| | Date | Particulars | J.F. | Amount | Date | Particulars | J.F. | | Amount | | | | 2016 Jan. 01 | Machinery | | 20,000 | 2016 Jan. 01 | Provision for | | | 2,000 | | | | | | | | Jan. 01 Jan. 01 | Depreciation Bank (Sale) Profit & Loss (Loss on sale) | | | | |

Table on page 29 (12×10)

| | 2017 Jul. 01 Jul. 01 | Machinery Profit & Loss (Profit on sale) | 5 | 20,000 3,000 | 2017 Jul. 01 Jul. 01 | Provision for Depreciation (` 2,000 + 2,000 +1,000) Bank (Sale) | | 5,000 18,000 | |

| Provision for Depreciation Account Dr. C Date Particulars J.F. Amount Date Particulars J.F. Amount 2015 2015 Dec. 31 Balance c/d 10,000 Dec. 31 Depreciation 10,0001 10,000 10,000 2016 2016 Jan. 01 Truck Disposal 2,000 Jan. 01 Balance b/d 10,000 Dec. 31 Balance c/d 16,000 Dec. 31 Depreciation 8,0002 18,000 18,000 2017 2017 Jan. 01 Truck Disposal 5,000 Jan. 01 Balance b/d 16,000 Dec. 31 Balance c/d 18,750 Dec. 31 Depreciation ( 6000+ 1000+750) 7,7503 23,750 23,750 Working Notes 1. Calculation of amount of depreciation Year - 2015 10% on 1,00,000 for one year 10,0001 Year - 2016 10% on 80,000 for one year 80002 Year – 2017 10% on 60,000 for 1 year 6,000 10% on 20,000 for six months 1,000 10% on 30,000 for three months 7,50 7,7503 2. Loss on sale of first truck Original cost on January 01, 2015 20,000 Less depreciation at 10% (2,000) | | | | | | | | | r. | | | Date | Particulars | J.F. | Amount | Date | Particulars | J.F. | Amount | | | | 2015 Dec. 31 2016 Jan. 01 Dec. 31 2017 Jan. 01 Dec. 31 | Balance c/d Truck Disposal Balance c/d Truck Disposal Balance c/d | | 10,000 | 2015 Dec. 31 2016 Jan. 01 Dec. 31 2017 Jan. 01 Dec. 31 | Depreciation Balance b/d Depreciation Balance b/d Depreciation ( 6000+ 1000+750) | | 10,0001 | |

| | | | | 2,000 16,000 | | | | 10,000 8,0002 | |

| | | | | 5,000 18,750 | | | | 16,000 7,7503 | |

Table on page 31 (10×10)

| Sale price 5,000 2. Loss on sale 7,0001 Depreciation for the year 2015-16 10% of 30,000 ( 50,000 – 20,000) for full year 3,000 10% of 25,000 for 6 month 1,250 4,250 Illustration 8 Solve illustration 07, if the firm maintains furniture disposal account prepared along wit furniture account and provision for depreciation on furniture account. Books of Anil Traders Furniture Account Dr. C Date Particulars J.F. Amount Date Particulars J.F. Amount 2015 2015 Apr. 01 Balance b/d 50,000 Apr. 01 Furniture 20,000 disposal Oct.01 Bank 25,000 2016 Mar. 31 Balance c/d 55,000 75,000 75,000 Provision for Depreciation on Furniture Account Dr. C Date Particulars J.F. Amount Date Particular J.F. Amount 2015 2015 Oct.01 Furniture 8,000 Apr.01 Balance b/d 22,000 disposal 2016 2016 | | | | | | | | | h r. |

| | Date | Particulars | J.F. | Amount | Date | Particulars | J.F. | Amount | | | | 2015 Apr. 01 Oct.01 | Balance b/d Bank | | 50,000 25,000 | 2015 Apr. 01 2016 Mar. 31 | Furniture disposal Balance c/d | | 20,000 55,000 | |

| | Date | Particulars | J.F. | Amount | Date | Particular | J.F. | Amount | | | | 2015 Oct.01 2016 | Furniture disposal | | 8,000 | 2015 Apr.01 2016 | Balance b/d | | 22,000 | |