Sometime business need to sale their Fixed assets .Before we go further, we have to understand that what are Fixed Assets .
Fixed Assets : Fixed assets are the long-term tangible assets that are used by business in generating income. Example Land and building ,plant and Machinery furniture and fixture.
When we sale these assets it effects our Balance sheet Asset side as these assets are going out of business and in exchange of that either we increase our bank accounts or Cash accounts or either purchase new assets. Under such condition we sometime make profit or either loss.
The disposal of assets involves eliminating assets from the accounting records.
When a fixed asset or plant asset is sold, there are several things that must take place:
Lets under stand its with example .
Sold Machinery (fixed Assets) book Value Rs 100000 for Rs 90,000 .
Note here the asset which we have in books have value Rs 100000 but we sold it for Rs 90,000 therefore we make a loss of Rs 10000 here hence we have to show that loss in the books of accounts .
To make the journal entry of the same in the books
Profit and loss Accounts | 10,000 |
Cash A/c | 90,000 |
To Machinery | 100000 |
Being Machinery sold |
|
Profit and loss Accounts | Debited | Nominal Accounts- expense or loss by nature |
Cash A/c | Debited | Real Account -What comes in |
Machinery | Credited | Real Account- What goes out out |
Therefore, now this loss on sale of asset to be shown in the Profit and loss account and shown in the debit side
Particular Dr | Amount | Particular Cr | Amount |
To loss on sale of Asset | 10,000 |
|
|
Whereas in Balance Sheet In asset side a cash account will increase and Fixed asset machinery a/c will decrease .
Sold Machinery (fixed Assets) book Value Rs 100000 for Rs 110,000 .
Note here the asset which we have in books have value Rs 100000 but we sold it for Rs 110,000 therefore we make a profit of Rs 10000 here hence we have to show that Profit in the books of accounts .
To make the journal entry of the same in the books
Cash A/c | 110,000 |
To Profit and loss Accounts | 10,000 |
To Machinery | 100000 |
Being Machinery sold |
|
Profit and loss Accounts | credited | Nominal Accounts – profit or Income by nature |
Cash A/c | Debited | Real Account- What comes in |
Machinery | Credited | Real Account -what goes out out |
Therefore, now this loss on sale of asset to be shown in the Profit and loss account and shown in the credit side
Particular | Amount | Particular | Amount |
|
| To Profit on sale of Asset | 10,000 |
Whereas in Balance Sheet In asset a cash account will increase and Fixed asset machinery will decrease .
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