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)
My question is?
ReplyDeleteFrom purchase to sell of machinary pass all the journal entries.
sdd
ReplyDelete