Asset Disposal / Write Off

Invoice Sales

Mustufa Rangwala

 

Fixed Asset disposal or write off can occur when company wants to sale asset after few years of depreciation or in case of asset is scraped/broken.

Here we will see how we can use customer invoice and customer payment.

Why we do asset disposal/write off: This is essential since original cost and total accumulated depreciation should be removed from the accounting records.


Example

Company has fixed assets that originally cost of purchase 20,000 which have been depreciated by 12,000 to the date of disposal. 

You may dispose asset in below conditions:

1. The fixed assets is scrapped and written off as having no value.

2. The fixed assets is sold for 6,000.

3. The fixed assets is sold for 10,000.

Odoo text and image block

Net Book Value Formula

NBV = Purchase Cost - Accumulated Depreciation


In above example NBV will be 8000 (Using 20000-12000=8000).

Disposal of Fixed Assets = Profit and Loss account that would hold gain/loss/write off values.

Accumulated Depreciation = Depreciation account for given asset.

Fixed Assets = Asset account

Cash = Cash Account


Disposal of Fixed Assets Accounting Entry – For Write Off

Account                                                     Debit                             Credit

Fixed Assets                                                                                      20000

Accumulated Depreciation                     12000

Disposal of Fixed Assets                          8000


If we sold asset in 10000 then we can experience gain of 2000 and we have to make accounting entry as below:

Disposal of Fixed Assets Accounting Entry – For Gain

---------------------------------------------------------------------------------------------------------------------------------------------------------------

Account                                                     Debit                             Credit

Fixed Assets                                                                                      20000

Disposal of Fixed Assets                            20000                                     

---------------------------------------------------------------------------------------------------------------------------------------------------------------

Disposal of Fixed Assets                                                                         12000

Accumulated Depreciation                     12000


If we sold asset in 6000 then we can experience loss of 2000 and we have to make accounting entry as below:

Disposal of Fixed Assets Accounting Entry – For Loss

---------------------------------------------------------------------------------------------------------------------------------------------------------------

Account                                                     Debit                             Credit

Fixed Assets                                                                                      20000

Disposal of Fixed Assets                            20000                                     

---------------------------------------------------------------------------------------------------------------------------------------------------------------

Disposal of Fixed Assets                                                                         12000

Accumulated Depreciation                     12000


Customer Invoice and Customer Payment - Gain Case

Disposal of Fixed Assets Accounting Entry –Customer Invoice - Gain Case

---------------------------------------------------------------------------------------------------------------------------------------------------------------

Account                                                     Debit                             Credit

Customer Receivable                              10000

Disposal of Fixed Assets                                                                  10000                                     

---------------------------------------------------------------------------------------------------------------------------------------------------------------

Customer Receivable                                                                           10000

Cash/Bank Account                                 10000

Customer Invoice and Customer Payment - Loss Case

Disposal of Fixed Assets Accounting Entry –Customer Invoice - Loss Case

---------------------------------------------------------------------------------------------------------------------------------------------------------------

Account                                                     Debit                             Credit

Customer Receivable                              6000

Disposal of Fixed Assets                                                                  6000                                     

---------------------------------------------------------------------------------------------------------------------------------------------------------------

Customer Receivable                                                                           6000

Cash/Bank Account                                6000