Asset Disposal: Sales, Retirements & Exchanges

Concept

Selling an Asset

When selling, compare the selling price to the book value (Cost − Accumulated Depreciation). If selling price > book value → Gain. If selling price < book value → Loss. Always update depreciation to the date of sale first.

Example

Sale Example

Equipment: Cost $80,000, Accumulated Depreciation $60,000 → Book Value $20,000. Sold for $25,000. Entry: Debit Cash $25,000, Debit Accumulated Depreciation $60,000, Credit Equipment $80,000, Credit Gain on Sale $5,000.

Concept

Retirement (Scrapping)

If an asset is retired with no sale proceeds, the difference between book value and $0 is a loss. If fully depreciated (book value = $0), there is no gain or loss.

Key Point

Key Rule

Gains and losses on disposal appear on the income statement. Always remember to record depreciation up to the disposal date before calculating gain or loss.

Depreciation Methods

Impairment of Long-Term Assets

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Practice Questions