You can sell a fixed asset any time during its useful life. This raises the need to recognize any gain or loss resulting from the sale of the asset (disposal) in your business income statement and de-recognize the asset from the business balance sheet.
Besides, you should update the asset’s depreciation expense after selling the asset. The overall concept for the accounting for fixed assets disposals is to reverse the cost of the asset and its accumulated depreciation amount. The difference between the net book value (cost of the asset minus the amount of accumulated depreciation) and the sale proceeds should be recognized as either a loss or a gain.
Here is how you can account for disposal of a fixed asset or property, plant and equipment.
- No gains or loss (the asset has fully depreciated): in this case, you should debit the amount of accumulated depreciation and the credit the amount of the fixed asset.
- You sold the asset at a loss: not always assets are disposed at a profit. Sometimes you can end up selling the asset at a loss. In this case, you should debit all the amount received to the cash account, debit the loss in the sales account, debit the accumulated depreciation and credit the fixed asset account.
- If you make a profit on the sale of the asset, debit the cash account for the amount you have received, credit the fixed asset account, credit the profit on the sales account for the asset, and debit the accumulated depreciation.
A disposal of fixed asset should occur when the asset is sold, obsolete or broken. Regardless of what circumstances lead to disposal of the asset, the procedure for disposing the asset is the same. Note that you should ensure that you have removed the asset’s cost and the amount of accumulated depreciation from your business’s balance sheet.
Every time you dispose a fixed asset, whether you sell it, lose it, junk it, donate it, destroy it, or convert it for personal use, you would still need to keep clear records regarding the sale and report any proceeds in accordance with the Financial Reporting Standards.
It is important to dispose a fixed asset properly or to use accounting services in Singapore to manage this task. This allows you to maintain a clean balance sheet so that the recorded fixed asset and its accumulated depreciation balances clearly reflect that the asset was acquired and owned by the business.