Asset Disposals Step By Step
Peter Marshall Bsc (Econ) BA MBIM is a Fellow of the Society of Business Teachers, and an experienced educator in business subjects. He is also a prolific author and his books have been translated and sold worldwide. He lives in London, UK.
What you will need
- the nominal ledger
- the journal
- the cash book.
Step by step
- 1.In the next available space in the journal, write the date in the appropriate column, and the word ‘Sundries’ to indicate a combination posting. Below that write ‘Asset disposal [name of asset]’, as in the example opposite.
- 2.Enter the original value of the asset, i.e. the value actually recorded in the asset account, in the debit cash column (in the example, £10,000).
- 3.Beneath your heading, indenting slightly, write the name of the asset concerned: ‘Motor van’.
- 4.Enter the same book value (£10,000) in the credit cash column.
- 5.Beneath your last entry in the particulars column, write: ‘Provision for depreciation on [name of asset]’.
- 6.In the debit cash column, enter the balance showing on provision for depreciation account, e.g. £6,000.
- 7.Beneath your last entry in the particulars column, indenting slightly, write the name of the asset disposal account concerned.
- 8.In the credit cash column, enter the balance of the provision for depreciation account, e.g. £6,000.
- 9.In the particulars column write ‘Cash’ or ‘Bank’ as appropriate (or the name of a personal account if the van was sold on credit).
- 10.Enter sales proceeds in the debit cash column (e.g. £3,000).
- 11.Beneath the last entry in the particulars column, indenting slightly, write the name of the asset disposal account concerned.
- 12.Enter the value of sales proceeds in the credit cash column, e.g. £3,000.
- 13.Beneath this set of entries write: ‘To record disposal of [asset concerned]’.
- 14.Make postings to the ledger following the instructions you have just recorded in the journal. Open new accounts where necessary (see page 47 if in doubt).
- 15.Total up and balance the asset account, the provision for depreciation account and the asset disposal acount, the last of which will be the only one which may have a balance remaining. Remember, you need a separate asset disposal account for each asset disposed of.
- 16.Remember to complete the folio columns.