Aarambh

For 11TH COMMERCE

Lecture : 12
Depreciation

By NIKHIL KUMAR
TOPICS TO BE COVERED

1 Disposal of An Asset – Theory and Illustration

2
Asset Disposal Account

It is appropriate to open a new account, ‘Asset Disposal A/c’ when a part of the
existing asset is sold. The method of recording in the books of accounts
depending upon the fact whether:

(i) Provision for Depreciation a/c is not maintained.

(ii) Provision for Depreciation A/c is maintained.

(i) When Provision for Depreciation A/c is not maintained:
(i) For Transfer of Book Value of Asset sold to Asset Disposal A/c
Assets Disposal A/c. Dr.
To Asset A/c
(ii) For Sale of Asset
Bank A/c Dr.
To Asset Disposal A/c

(iii) For Gain on Sale of Asset

Asset Disposal A/c Dr.
To Gain on Sale of Asset A/c
(iv) For Loss on Sale of Asset
Loss on Sale of Asset A/c Dr.
To Asset Disposal A/c
Note : GST has no effect on Asset Disposal A/c. Profit/Loss on Sale
of Asset A/c is transferred to profit and Loss A/c.
(ii) When Provision for Depreciation A/c is maintained:
(i) For Transfer of Original cost of asset sold to Asset Disposal A/c
Asset Disposal A/c Dr.
To Asset A/c
(ii) For Sale of Asset
Bank A/c Dr.
To Asset Disposal A/c
(iii) For recording current year depreciation on asset sold.
Depreciation A/c Dr.
To Provision for Depreciation A/c

(iv) For Transfer of provision of Depreciation A/c to Asset Disposal A/c

Provision for Depreciation A/c / Accumulated Depreciation A/c. Dr.
To Asset Disposal A/c
(v) Gain on Sale of Asset
Asset Disposal A/c Dr.
To Profit on Sale of Asset A/c

(vi) Loss on Sale of Asset

Loss on Sale of Asset A/c Dr.
To Asset Disposal A/c

Note : GST has no effect on Asset Disposal A/c. Profit/Loss on Sale of Asset a/c
is transferred to Profit and Loss A/c.
Illustration :
On 1st April, 2017, Sindhutai Sapkal Industries purchased a machinery for Rs.
10,00,000 On 1st January, 2020, a part of machinery purchased on 1st April, 2017 for
Rs. 2,00,000 was sold for 1,05,000 and a new machinery at a cost of Rs. 2,50,000 was
installed on the same date. Company charged depreciation @ 10% p.a. on original
cost method.

Show Journal entries and necessary ledger accounts along with Assets
Disposal A/c for 3 years ending 31st March assuming that :
Provision for Depreciation Account is not maintained.
Solution :
Dr. Machinery A/c Cr.
Date Particulars (Rs.) Date Particulars (Rs.)
Dr. Machinery Disposal A/c Cr.
Date Particulars (Rs.) Date Particulars (Rs.)
Dr. Depreciation A/c Cr.
Date Particulars (Rs.) Date Particulars (Rs.)
 THANK- YOU
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