JOURNAL ENTRY FOR SALE OF ASSET


Journal entry for Sale of Asset for profit
                
                 Bank A/C      Dr                         6500
To old Machinery A/C (WDV)                  4500
                         To Profit on sale of Machinery A/C          1500*
                         To Excise duty payable A/C                     500

(Narration:- Being Machinery sold on profit)
The rules for passing Journal Entry
Debit
Here we are getting cash into business by selling goods.
As per Real account rule (bank) "debit what comes into business"(Current asset)
Credit
Due to sale there is decrease in fixed asset. So the fixed asset is credited.
As per Real account rule (old machinery)“Credit what goes out of business"(Asset)
Credit
Profit on sale will be treated as gain and it will be shown on credit side of profit and loss account at the year end.
As per nominal account rule (profit on sale) “Credit all income or gain"
Credit
Here Duties and taxes payable will be treated as representative person. When duties are payable will be treated as liability.
As per personal account rule (Duties and taxes) "credit the giver account"(Current liability)
(I.e. taxes collected from debtor are not an income it is a liability and it must be paid to concern tax authorities)
Ex: - EXCISE DUTY, VAT & SERVICE TAX.

Journal entry for deducting the provision for depreciation related to sold machinery from asset

           Provision for depreciation A/C      Dr              1500
To old Machinery A/C               1500

(Narration:- Being Provision for depreciation was deducted from the cost of asset )
The rules for passing Journal Entry
Debit
In the books the depreciation on assets are accumulated in provision for depreciation A/C and the assets are shown at cost.
The provision for depreciation A/C shows Credit balance, so it has to be decreased to the proportion of depreciation related to old machine by debiting the provision for depreciation A/C.
Credit
As assets are maintained at cost in the books it should be brought down to Written Down value at the time of sale,so the asset A/C is credited.  

* Computation of Profit on sale of asset
Step 1-Compute depreciation up to date of sale and transfer it to provision for depreciation A/C.
Step 2-Deduct the accumulated depreciation in provision for depreciation A/C related to asset up to date of sale from asset A/c . The Written down value will be arrived.
Step 3-Deduct the WDV from sale value(Excluding Excise duty & VAT), if the difference amount is positive then it is profit. 


Computation for above illustration:-
Step 1-Here the date of sale is 01/04/2015 so no depreciation required up to date of sale. Depreciation=0/-
Step 2- Provision for depreciation A/c balance as on date of sale i.e. 01/04/2015 is Rs.1500/-
Written down value=Cost of asset-Provision for depreciation, Rs.6000 – Rs.1500=Rs.4500/-(WDV)
Step 3-Sale value excluding duty=Rs.6500-Rs.500 = Rs.6000/-
                   Profit=Sale value excluding duties – Written down value of asset(WDV)
                                      Rs.6000 – Rs.4500 = Rs.1500/-




Journal entry for Sale of Asset for loss A/c

Bank A/C      Dr                                           3500
Loss on sale of Machinery A/C    Dr                1500*     
                                     To old Machinery A/C (WDV)        4500
                                     To Excise duty payable A/C           500

(Narration:- Being Machinery sold on loss)
The rules for passing Journal Entry
Debit
Here we are getting cash into business by selling goods.
As per Real account rule (bank) "debit what comes into business"(Current asset)
Debit
Loss on exchange will be treated as expense and it will be shown on debit side of profit and loss account at the year end.
As per nominal account rule (Loss on sale ) “Debit all expense or losses"
Credit
Due to sale there is decrease in fixed asset. So the fixed asset is credited.
As per Real account rule (old machinery)“Credit what goes out of business"(Asset)
Credit
Here Duties and taxes payable will be treated as representative person. When duties are payable will be treated as liability.
As per personal account rule (Duties and taxes) "credit the giver account"(Current liability)
(I.e. taxes collected from debtor are not an income it is a liability and it must be paid to concern tax authorities)
Ex: - EXCISE DUTY, VAT & SERVICE TAX.

Journal entry for deducting the provision for depreciation related to sold machinery from asset
      
     Provision for depreciation A/C      Dr              1500
To old Machinery A/C               1500

(Narration:- Being Provision for depreciation was deducted from the cost of asset )
The rules for passing Journal Entry
Debit
In the books the depreciation on assets are accumulated in provision for depreciation A/C and the assets are shown at cost.
The provision for depreciation A/C shows Credit balance, so it has to be decreased to the proportion of depreciation related to old machine by debiting the provision for depreciation A/C.
Credit
As assets are maintained at cost in the books it should be brought down to Written Down value at the time of sale, so the asset A/C is credited.  

* Computation of Loss on sale of asset
Step 1-Compute depreciation up to date of sale and transfer it to provision for depreciation A/C.
Step 2-Deduct the accumulated depreciation in provision for depreciation A/C related to asset up to date of sale from asset A/c. The Written down value will be arrived.
Step 3-Deduct the WDV from sale value(Excluding Excise duty & VAT), if the difference amount is negative then it is Loss. 

Computation for above illustration:-
Step 1-Here the date of sale is 01/04/2015 so no depreciation required up to date of sale. Depreciation=0/-
Step 2- Provision for depreciation A/c balance as on date of sale i.e. 01/04/2015 is Rs.1500/-
Written down value=Cost of asset-Provision for depreciation, Rs.6000 – Rs.1500=Rs.4500/-(WDV)
Step 3- Sale value excluding duty=Rs.3500-Rs.500 = Rs.3000/-
                   Profit=Sale value excluding duties – Written down value of asset (WDV)
                                      Rs.3000 – Rs.4500 = - Rs.1500/-

Note:-

The excise duty payable will be calculated as per provision of excise duty Rule 3(5A) Removal of capital goods after use (w .e .f. 1-4-2012)

Comments

Popular posts from this blog

AMALGAMATION :- JOURNAL ENTRIES IN THE BOOKS OF TRANSFEROR AND TRANSFEREE COMPANY

SOLVE AMALGAMATION PROBLEM IN 7 STEPS

PREPARE CONSOLIDATED BALANCE SHEET IN 9 STEPS