DISPOSAL OF A NON-CURRENT ASSET

Accounting treatment

1. When we buy assets:

   • DR: Asset a/c
   • CR: Cash / Bank / Creditor

2. Annual provision for depreciation:

   • DR: P & L
   • CR: Provision for depreciation

3. When asset sold / disposal:

   1st step:

   • DR: Disposal a/c at cost
   • CR: Asset a/c

   2nd step:

   • Dr. Cash / Bank } Selling price of the asset
   • Cr. Disposal

   3rd step:

   • Dr. Provision for depreciation } with the amount of Prov.
   • Cr. Disposal for depreciation of the asset sold

   4th step:

   • Dr. P & L } In case of loss on disposal.
   • Cr. Disposal.

   Or

   • Dr. Disposal } In case of gain on disposal.
   • Cr. P & L

Example

A machine bought on 1.1.2008 for 1,000,000 and sold on 1.1.2010 for 500,000. Depreciation per annum is 10% on straight line method.

Draw up:

• Disposal a/c
• Provision for depreciation a/c
• P & L a/c

Solution