Entries for sale of asset :
When the following entries are made:
1. Entry for sale
Bank A/c …. Dr. With the amount of sale
To Asset A/c. proceeds
2. Entry for depreciation provided during the year of sale.
Depreciation A/c …. Dr. With the amount of
To Asset A/c. depreciation provided
during the year
Note : Depreciation is calculated on the date of sale which may be during the year or end of the year.
3. Entry for the transfer of profit on sale of asset.
Asset A/c …. Dr. With the amount of profit
To Profit & Loss A/c. on sale of asset.
4. Entry for the transfer of Loss on sale of asset
Profit & Loss A/c …. Dr. With the amount of Loss
To Asset A/c. on sale of asset.
a) Format of Fixed Asset Account when it is profit on sales
Fixed Asset Account
Date |
Particulars | Rs. | Date | Particulars |
Rs. |
Date on which
Sale is made |
To Balance b/d
To Profit & Loss A/c (Profit on Sales) |
xxx |
Date on which Sale is made | By Depreciation A/c By Bank A/c |
xxx |
xxx |
xxx |
b) Format of Fixed Asset Account when it is loss on sales
Fixed Asset Account
Dr. Cr.
Date |
Particulars | Rs. | Date | Particulars |
Rs. |
Year Begin–ning | To Balance b/d |
xxx |
Date on which Sale is made 99 99 |
By Depreciation A/c
By Bank A/c By Profit & Loss A/c (Loss on sale) |
xxx xxx |
xxx |
xxx |
Note: The above format relates only to the year in which sales are made.
Illustration :
Deepak Manufacturing Company purchased on 1st April 2002, Machinery for Rs.2,90,000 and spent Rs.10,000 on it’s installation.
After having used it for three years it was sold for Rs.2,00,000. Depreciation is to be provided every year at the rate of 15% per annum on the Fixed Instalment method.
Pass the necessary journal entries, prepare machinery account and depreciation account for three years ends on 31st March every year.
Solution:
Calculation of profit or loss on sale of machinery
Cost Price (2,90,000 + 10,000) 3,00,000
Less: Depreciation for 2002-03 @ 15% 45,000
2,55,000
Less: Depreciation for 2003-04 @ 15% 45,000
_ 2,10,000
Less: Depreciation for 2004-05 @ 15% 45,000
Book value as on the date of sale 1,65,000
As book value is less than selling price the difference is Profit.
= Rs.2,00,000 – 1,65,000
∴ Profit is Rs.35,000.
Journal Entries in the books of
Deepak Manufacturing Company
Date |
Particulars | L.F. | Debit Rs. |
Credit |
2002 | ||||
Apr 1 | Machinery A/c Dr |
3,00,000 |
||
To Bank A/c |
3,00,000 |
|||
(Machinery Purchased and installation charges paid) | ||||
2003 | ||||
Mar 31 | Depreciation A/c Dr |
45,000 |
||
To Machinery A/c |
45,000 |
|||
(Depreciation Provided) | ||||
99 | Profit & Loss A/c Dr |
45,000 |
||
To Depreciation A/c |
45,000 |
|||
(Depreciation transferred to Profit & Loss account) | ||||
2004 | ||||
Mar 31 | Depreciation A/c Dr |
45,000 |
||
To Machinery A/c |
45,000 |
|||
(Depreciation provided) | ||||
99 | Profit & Loss A/c Dr |
45,000 |
||
To Depreciation A/c |
45,000 |
|||
(Depreciation transferred to Profit and Loss account) |
2005 | ||||
Mar 31 | Depreciation A/c Dr |
45,000 |
||
To Machinery A/c |
45,000 |
|||
(Depreciation provided) | ||||
99 | Profit & Loss A/c Dr |
45,000 |
||
To depreciation A/c |
45,000 |
|||
(Depreciation transferred to Profit | ||||
& Loss account) | ||||
Mar 31 |
Bank A/c Dr |
2,00,000 |
||
To Machinery A/c |
2,00,000 |
|||
(Machinery Sold) | ||||
99 | Machinery A/c Dr |
35,000 |
||
To Profit & Loss A/c |
35,000 |
|||
(Profit on sale of machinery) |
Ledger Account
Dr. Machinery Account Cr.
Date | Particulars | Rs. | Date | Particulars | Rs. |
2002 | 2003 | ||||
Apr 1 | To Bank A/c |
3,00,000 |
Mar 31 | By Depreciation A/c |
45,000 |
“ | By Balance c/d |
2,55,000 |
|||
3,00,000 |
3,00,000 |
||||
2003 | 2004 | ||||
Apr 1 | To Balance b/d |
2,55,000 |
Mar 31 | By Depreciation A/c |
45,000 |
“ | By Balance c/d |
2,10,000 |
|||
2,55,000 |
2,55,000 |
||||
2004 | 2005 | ||||
Apr 1 | To Balance b/d |
2,10,000 |
Mar 31 | By Depreciation A/c |
45,000 |
Mar 31 | To Profit & Loss |
35,000 |
“ | By Bank A/c |
2,00,000 |
A/c | |||||
(Profit on sale) | |||||
2,45,000 |
2,45,000 |
Depreciation Account
Dr. Cr.
Date |
Particulars | Rs. |
Date |
Particulars |
Rs. |
2003 | 2003 | ||||
Mar 31 | To Machinery A/c |
45,000 |
Mar 31 | By Profit & Loss A/c |
45,000 |
45,000 |
45,000 |
||||
2004 | 2004 | ||||
Mar 31 | To Machinery A/c |
45,000 |
Mar 31 | By Profit & Loss A/c |
45,000 |
45,000 |
45,000 |
||||
2005 | 2005 | ||||
Mar 31 | To Machinery A/c |
45,000 |
Mar 31 | By Profit & Loss A/c |
45,000 |
45,000 |
45,000 |
Illustration :
Machinery account showed a balance of Rs.80,000 on 1st April 2001. On 1st October 2003, another machinery was purchased for
Rs.48,000. On 30th September 2003, a machinery which has book value Rs.80,000 on 1.4.2001 was sold for the Rs.48,000. Depreciation
is to be provided at 10% per annum on Written Down Value Method. The accounting year ends on 31st March.
Prepare Machinery account and Depreciation account for three years.
Solution:
Calculation of Profit or Loss on Sale of Machinery
Rs.
Cost of Machinery (1.4.2001) 80,000
Less: Depreciation for 2001-02 8,000
72,000
Less: Depreciation for 2002-03 7,200
64,800
Less: Depreciation till the date of sale (30.9.2003) 3,240
Book value on the date of sale 61,560
As book value is greater than selling price the difference is loss.
= 61,560 –– 48,000
∴ Loss = Rs. 13,560
Ledger Accounts
Machinery Account
Dr. Cr.
Date |
Particulars |
Rs. |
Date |
Particulars |
Rs. |
2001 |
2002 |
||||
Apr 1 |
To Balance b/d |
80,000 |
Mar 31 |
By Depreciation A/c |
8,000 |
“ |
By Balance c/d |
72,000 |
|||
80,000 |
80,000 |
||||
2002 |
2003 |
||||
Apr 1 |
To Balance b/d |
72,000 |
Mar 31 |
By Depreciation A/c |
7,200 |
“ |
By Balance c/d |
64,800 |
|||
72,000 |
72,000 |
||||
2003 |
2003 |
||||
Apr 1 |
To Balance b/d |
64,800 |
Sep 30 |
By Depreciation A/c |
3,240 |
Oct 1 |
To Bank A/c |
48,000 |
(for 6 months) | ||
“ |
By Bank A/c |
48,000 |
|||
“ |
By Profit & Loss A/c | ||||
(Loss on sale) |
13,560 |
||||
2004 |
|||||
Mar 31 |
By Depreciation A/c |
2,400 |
|||
(on new machine for 6 months) | |||||
“ | By Balance c/d |
45,600 |
|||
1,12,800 |
1,12,800 |
||||
2004 |
|||||
Apr 1 |
To Balance b/d |
45,600 |
Depreciation Account
Dr. Cr.
Date |
Particulars | Rs. | Date | Particulars |
Rs. |
2002 |
2002 | ||||
Mar 31 |
To Machinery A/c |
8,000 |
Mar 31 |
By Profit & Loss A/c |
8,000 |
8,000 |
8,000 |
||||
2003 |
2003 |
||||
Mar 31 |
To Machinery A/c |
7,200 |
Mar 31 |
By Profit & Loss A/c |
7,200 |
7,200 |
7,200 |
||||
2003 |
2004 |
||||
Sep 30 |
To Machinery A/c |
3,240 |
Mar 31 |
By Profit & Loss A/c |
5,640 |
2004 |
|||||
Mar 31 |
To Machinery A/c |
2,400 |
|||
5,640 |
5,640 |
Illustration :
Vimal & Brothers purchased a Machinery for Rs.3,75,000 on 1st July 2002. It is depreciated at 20% per annum on Straight Line Method
for three years. Having became obsolete it was sold for Rs.75,000 on 31.3.2005.
Pass the journal entries, prepare Machinery account and Depreciation account. Accounts are closed 31st March every year.
Solution:
Calculation of Profit or loss on sale of Machinery
Rs.
Cost of Machinery (1.7.2002) 3,75,000
Less: Depreciation for 2002-03 56,250
(for 9 months at the rate of 20%)
3,18,750
Less: Depreciation for 2003-04 75,000
_2,43,750
Less: Depreciation for 2004-05 75,000
Book value on the date of sale 1,68,750
As book value is greater than selling price the difference is loss.
= Rs. 1,68,750 –– 75,000
∴ Loss = Rs. 93,750
In the Books of Vimal & Brothers
Journal Entries
Date |
Particulars |
L.F |
Debit |
Credit |
2002 |
Machinery A/c Dr |
3,75,000 |
||
To Bank A/c |
3,75,000 |
|||
(Machinery purchased) | ||||
2002 |
Depreciation A/c Dr |
56 ,250 |
||
To Machinery A/c |
56,250 |
|||
(Depreciation provided) | ||||
’’ |
Profit & Loss A/c Dr |
56,250 |
||
To Depreciation A/c |
56,250 |
|||
(Depreciation transferred to Profit & Loss account) | ||||
2004 |
Depreciation A/c Dr |
75,000 |
||
To Machinery A/c |
75,000 |
|||
(Depreciation provided) | ||||
“ |
Profit & Loss A/c Dr |
75,000 |
||
To Depreciation A/c | ||||
(Depreciation transferred to Profit & Loss account) |
75,000 |
2005 Mar 31 |
Depreciation A/c Dr | 75,000 | ||
To Machinery A/c | 75,000 | |||
(Depreciation provided) | ||||
“ |
Profit & Loss A/c Dr | 75,000 | ||
To Depreciation | 75,000 | |||
(Depreciation transferred to Profit & Loss account) | ||||
’’ |
Bank A/c Dr | 75,000 | ||
’To Machinery A/c | 75,000 | |||
(Machinery sold) | ||||
Mar 31 | Profit & Loss A/c Dr | 93,750 | ||
To Machinery A/c | 93,750 | |||
(Loss on sale of plant) | ||||
“ |
Ledger Accounts
Plant Account
Dr. Cr.
Date |
Particulars | Rs. | Date | Particulars |
Rs. |
2002 |
2003 |
||||
July 1 |
To Bank A/c |
3,75,000 |
Mar 31 |
By Depreciation A/c |
56,250 |
“ | By Balance c/d |
3,18,750 |
|||
3,75,000 |
3,75,000 |
||||
2003 |
2004 |
||||
Apr 1 |
To Balance b/d |
3,18,750 |
Mar 31 |
By Depreciation A/c |
75,000 |
“ |
By Balance c/d |
2,43,750 |
|||
3,18,750 |
3,18,750 |
||||
2004 |
2005 |
||||
Apr 1 |
To Balance b/d |
2,43,750 |
Mar 31 |
By Depreciation A/c |
75,000 |
“ |
By Bank A/c |
75,000 |
|||
“ |
By Profit & Loss A/c |
93,750 |
|||
(Loss on sale) | |||||
2,43,750 |
2,43,750 |
Depreciation Account
Dr. Cr.
Date | Particulars | Rs. | Date | Particulars |
Rs. |
2003 |
2003 | ||||
Mar 31 |
To Machinery A/c |
56,250 |
Mar 31 | By Profit & Loss A/c |
56,250 |
56,250 |
56,250 |
||||
2004 |
2004 | ||||
Mar 31 |
To Machinery A/c |
75 ,000 |
Mar 31 | By Profit & Loss A/c |
75,000 |
75,000 |
75,000 |
||||
2005 |
2005 | ||||
Mar 31 |
To Machinery A/c |
75,000 |
Mar 31 | By Profit & Loss A/c |
75,000 |
75,000 |
75,000 |
Illustration :
On April 1, 2001 Machinery was purchased for Rs.4,00,000. On 1st October 2002, a new machine costing Rs.2,40,000 was
purchased. On 30th September 2003, the machinery purchased on 1st April 2001 having became obsolete was sold for Rs.2,40,000. The accounting year ends on 31st March and depreciation is to be provided at 10% p.a. on straight line method.
Pass journal entries and prepare important ledger accounts for three years.
Solution:
Calculation of Profit or Loss on Sale of Machinery
Rs.
Cost of Machinery (April, 2001) 4,00,000
Less: Depreciation for 2001-02 40,000
3,60,000
Less: Depreciation for 2002-03 40,000
3,20,000
Less: Depreciation till the date of sale (30.9.2003) 20,000
Book value on the date of sale 3,00,000
As book value is greater than selling price the difference is loss.
= Rs.3,00,000 – 2,40,000
∴ Loss = Rs.60,000.
Date | Particulars | LE | Debit Rs. |
Credit Rs. |
2001 |
||||
Apr 1 |
Machinery A/c Dr |
4,00,000 |
||
To Bank A/c |
4,00,000 |
|||
(Machinery purchased) | ||||
2002 |
||||
Mar 31 |
Depreciation A/c Dr |
40,000 |
||
To Machinery A/c |
40,000 |
|||
(Depreciation provided) | ||||
9 9 |
Profit & Loss A/c Dr |
40,000 |
||
To Depreciation A/c |
40,000 |
|||
(Depreciation transferred to Profit & Loss A/c) | ||||
2002 |
||||
Oct 1 |
Machinery A/c Dr |
2,40,000 |
||
To Bank A/c |
2,40,000 |
|||
(New machine purchased) | ||||
2003 |
||||
Mar 31 |
Depreciation A/c Dr |
52,000 |
||
To Machinery A/c |
52,000 |
|||
(Depreciation provided 40,000 + 12,000) | ||||
Profit & Loss A/c Dr |
52,000 |
|||
To Depreciation A/c |
52,000 |
|||
(Depreciation transferred to Profit & Loss A/c) | ||||
2003 |
||||
Sep 30 |
Depreciation A/c Dr |
20,000 |
||
To Machinery A/c |
20,000 |
|||
(Depreciation provided on first machine till the date of sale) | ||||
Bank A/c Dr |
2,40,000 |
|||
To Machinery A/c |
2,40,000 |
|||
(First machinery sold) | ||||
Sep 30 |
Profit & Loss A/c Dr |
60,000 |
||
To Machinery A/c |
60,000 |
|||
(Loss on Sale of Machinery) | ||||
2004 |
||||
Mar 31 |
Depreciation A/c Dr |
24,000 |
||
To Machinery A/c |
24,000 |
|||
(Depreciation provided on Second Machine) | ||||
Profit & Loss A/c Dr |
44,000 |
|||
To Depreciation A/c |
44,000 |
|||
(Depreciation transferred to profit & loss A/c) 20,000+24,000 |
Ledger Accounts
Machinery Account
Dr. Cr.
Date |
Particulars | Rs. | Date | Particulars |
Rs. |
2001 |
2002 |
||||
Apr 1 |
To Bank A/c |
4,00,000 |
Mar 31 |
By Depreciation A/c |
40,000 |
“ |
By Balance c/d |
3,60,000 |
|||
4,00,000 |
4,00,000 |
||||
2002 |
2003 |
||||
Apr 1 |
To Balance b/d |
3,60,000 |
Mar 31 |
By Depreciation A/c
(40,000 + 12,000) |
52,000 |
Oct 1 |
To Bank A/c |
2,40,000 |
“ |
By Balance c/d |
5,48,000 |
6,00,000 |
“ | 6,00,000 | |||
2003 |
2003 |
||||
Apr 1 |
To Balance b/d |
5,48,000 |
Sep 30 |
By Depreciation A/c |
20,000 |
’’ |
By Bank A/c |
2,40,000 |
|||
’’ |
By Profit & Loss A/c
(Loss on sale) |
60,000 |
|||
2004 |
By Depreciation A/c |
24,000 |
|||
’’ |
By Balance c/d |
2,04,000 |
|||
5,48,000 |
( |
5,48,000 |
2004 Apr 1 |
To Balance b/d |
2,04,000 |
Depreciation Account
Dr. Cr.
Date |
Particulars | Rs. | Date | Particulars |
Rs. |
2002 |
2002 |
||||
Mar 31 |
To Machinery A/c |
40,000 |
Mar 31 |
By Profit & Loss A/c |
40,000 |
40,000 |
40,000 |
||||
2003 |
2003 |
||||
Mar 31 |
To Machinery A/c |
52,000 |
Mar 31 |
By Profit & Loss A/c |
52,000 |
52,000 |
52,000 |
||||
2003 |
2004 |
||||
Sep 30 |
To Machinery A/c |
20,000 |
Mar 31 |
By Profit & Loss A/c |
44,000 |
2004 |
|||||
Mar 31 |
To Machinery A/c |
24,000 |
|||
44,000 |
44,000 |
Illustration :
Aravinth & Brothers purchased a Machinery for Rs.90,000 on 1st April 2001. They spent Rs.10,000 for installation charges. But the
machinery was brought into use from 1st October 2001. It further purchased a machinery costing Rs.20,000 on 1st January 2004.
Accounts are closed 31st March every year. Depreciation is to be provided at the rate of 10% per annum on Written Down Value Method.
Prepare Machinery account & Depreciation account for three years.
In the Books of Aravinth & Brothers
Ledger Accounts
Machinery Account
Dr. Cr.
Date |
Particulars | Rs. | Date | Particulars |
Rs. |
2001 |
2002 |
||||
Apr 1 |
To Bank A/c |
1,00,000 |
Mar 31 |
By Depreciation A/c |
5,000 |
(10% on Rs.1,00,000 for 6 months) | |||||
“ |
By Balance c/d |
95,000 |
|||
1,00,000 |
1,00,000 |
||||
2002 |
2003 |
||||
Apr 1 |
To Balance b/d |
95,000 |
Mar 31 |
By Depreciation A/c |
9,500 |
“ |
By Balance c/d |
85,500 |
|||
95,000 |
95,000 |
||||
2003 |
2004 |
||||
Ap r 1 |
To Balance b/d |
85,500 |
Mar 31 |
By Depreciation A/c | |
2004 |
To Bank A/c |
20,000 |
(8550+500 i.e., 10% on Rs.20,000 | ||
for 3 months) |
9,050 |
||||
“ |
By Balance C/d |
96,450 |
|||
1,05,500 |
1,05,500 |
||||
2004 |
|||||
Apr 1 |
To Balance b/d |
96,450 |
Dr. Depreciation Account Cr.
Date |
Particulars | Rs. | Date | Particulars |
Rs. |
2002 |
2002 |
||||
Mar 31 |
To Machinery A/c |
5,000 |
Mar 31 |
By Profit & Loss A/c |
5,000 |
5,000 |
5,000 |
||||
2003 |
2003 |
||||
Mar 31 |
To Machinery A/c |
9,500 |
Mar 31 |
By Profit & Loss A/c |
9,500 |
9,500 |
9,500 |
||||
2004 |
2004 |
||||
Mar 31 |
To Machinery A/c |
9,050 |
Mar 31 |
By Profit & Loss A/c |
9,050 |
9,050 |
9,050 |
Illustration :
Machinery was purchased on 1.4.2000 for Rs.1,60,000. On 1.10.2000 another machinery was purchased for Rs.80,000. On 30.9.2001 the second machine was sold for Rs.80,000. Assuming that the books are closed on March 31 each year and the depreciation is 10% under diminishing balance method.
Prepare Machinery account for three years.
Solution:
Calculation of Profit or Loss on Sale of Machinery
Rs.
Cost of Machinery (1.10.2000) 80,000
Less: Depreciation for 2000 – 01 4,000
76,000
Less: Depreciation till the date of sale (30.9.2001) 3,800
Book Value on the date of sale 72,200
As book value is less than selling price the difference is profit.
= 80,000 –– 72,200
∴ Profit = Rs.7,800.
Ledger Accounts
Machinery Account
Dr. Cr.
Date |
Particulars | Rs. | Date | Particulars |
Rs. |
2000 |
2001 |
||||
Apr 1 |
To Bank A/c |
1,60,000 |
Mar 31 |
By Depreciation A/c | |
(16,000 + 4,000) |
20,000 |
||||
Oct 1 |
To Bank A/c |
80,000 |
“ |
By Balance c/d |
2,20,000 |
2,40,000 |
2,40,000 |
||||
2001 |
2001 |
||||
Apr 1 |
To Balance b/d |
2,20,000 |
Sep 30 |
By Depreciation A/c | |
Sep 30 |
To Profit & Loss | (80,000 — 4,000 | |||
A/c |
7,800 |
= 76,000 on | |||
Rs.76,000 @ | |||||
10% for 6 months) |
3,800 |
||||
Sep 30 |
By Bank A/c |
80,000 |
|||
2002 |
|||||
Mar 31 |
By Depreciation A/c | ||||
(1,60,000 — 16,000 | |||||
= 1,44,000 on | |||||
Rs .1,44,000 @ | |||||
10% for 1 year) |
14,400 |
||||
Mar 31 |
By Balance c/d |
1,29,600 |
|||
2,27,800 |
2,27,800 |
||||
2002 | |||||
Apr 1 | To Balance b/d |
1,29,600 |