Entries for sale of asset

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
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

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 Rs.
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 Rs.	Credit Rs.
2002 July 31	Machinery A/c Dr		3,75,000
	To Bank A/c			3,75,000
	(Machinery purchased)
2002 July 31	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 July 31	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 Mar 31	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 Jan 1	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

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