Proceeds on disposal



Keywords: disposal of fixed assets, long-term, non-current, journal entry, accounting, journal entries, examples
Description: Disposal of fixed assets is accounted for by removing the cost of the asset and the related accumulated depreciation from balance sheet, recording receipt or cash proceeds and recognizing any resulting gain or loss.

Disposal of fixed assets is accounted for by removing the cost of the asset and the related accumulated depreciation from balance sheet, recording receipt or cash proceeds and recognizing any resulting gain or loss.

A company may need to derecognize a fixed asset either upon the sale of the asset to another party or when the asset is no longer operational and is disposed off.

Whether a de-recognition results in a gain or loss or no gain and loss depends on whether the cash proceeds (if any) from the sale are higher than the carrying amount of the asset at the time of disposal or not.

Where an asset’s salvage value is zero i.e. it does not generate any cash flows at the end of its useful life, there is no gain or loss.

Company A purchased a software for $100,000 on 1 January 2009. The software license was valid for four years. At the time of expiry, i.e. 31 December 2012, Company A shall record the derecognition/disposal as follows:






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