Sale of Non-Current Asset
We will learn how to account for the sale of a non-current asset. This includes calculating the asset’s net book value at the date of sale, recording depreciation up to the date of disposal, and determining the profit or loss on disposal. We will also learn the journal entries for the sale and how to interpret the Sale of Non-Current Asset account. Lastly, we will learn how to calculate depreciation for the remaining assets that were not sold.
Related Lessons:
Calculating Gain or Loss on Sale
To determine if the business make a gain or a loss on the sale of its non-current asset:
First, we calculate the net book value of the said asset.
Net book value = Cost of asset – Accumulated depreciation of asset
Second, we compare the selling price to the net book value of the asset.
Selling price > Net book value = Gain
Selling price < Net book value = Loss
Gain on sale of non-current asset is recorded as Other Income in the Statement of Financial Performance, while Loss on sale of non-current asset is recorded as an Expense.
Recording Sale of Non-Current Asset in Journal and Account
The sale of non-current asset is recorded in the journal as follows:
1st – Removing cost of asset from asset account:
Dr Sale of non-current asset
Cr Non-current asset
2nd – Removing accumulated depreciation of asset from the account:
Dr Accumulated depreciation
Cr Sale of non-current asset
3rd – Recording selling price of asset:
Dr Cash in hand or Cash at bank
Cr Sale of non-current asset
4th – Recording the gain or loss:
Gain on sale:
Dr Sale of non-current asset
Cr Income summary
Loss on sale:
Dr Income summary
Cr Sale of non-current asset
In short, sale of non-current asset can be recorded as follows:
Dr Accumulated depreciation
Dr Cash in hand or Cash at bank
Cr Non-current asset
Dr Income summary (for Loss)
Cr Income summary (for Gain)
Watch: Full Concept Breakdown
Calculating Depreciation for Remaining Asset
Provision of depreciation is required for the remaining non-current asset that was not sold.
For depreciation calculated using the straight-line method, the remaining cost of the asset is used in the calculation.
For depreciation calculated using reducing -balance method, the remaining cost and accumulated depreciation of the asset is used in the calculation.