What is a Loss on Sale of Computer, Equipment, Land, and Truck?
What is a Loss on Sale of Computer, Equipment, Land, and Truck?
Occurs when the disposal price is less than the asset's net book value. The fixed assets are, in most cases, sold at a lower value than the purchase price.
Loss on the Sale of Computers, Equipment, Land, and Truck Details
Computers, equipment, land, and trucks are long-term assets owned by a business purchased to assist in generating income. In accounting, these items are referred to as fixed assets or property, plant and equipment, and are usually held in a company's accounting documents for more than one year.
Unlike current assets, fixed assets are not purchased by a company for immediate resale. Fixed assets are sold when they are no longer helpful in generating income through obsolescence or age. The sale of fixed assets is known as disposal, and like other sales, disposal of fixed assets can result in a loss or profit.
To determine if an asset has generated a loss or profit, the company will evaluate the item's depreciation. Over the asset's life, the acquisition will be depreciated annually to bring down its value. The difference between the asset's cost and the accumulated depreciation is the net book value.
Example of Loss on the Sale of Computers, Equipment, Land, and Truck
When a fixed asset is disposed of, different accounting entries will have to be recorded. To do this, you need to have a disposal account, through which the separate entries relating to the disposal will be made.
Suppose that a piece of equipment purchased three years ago for $1,000 is sold off for $200, where the accumulated depreciation on the equipment is $500. The respective accounting entries to record the sale of the equipment will be as follows;
Step 1: To recognize the reduction in fixed assets, debit the disposal account and credit the fixed asset account with the original cost of that asset. Remember that assets are held at actual cost during the lifetime of the investment.
- Debit: Disposal $1,000
- Credit: Equipment $1,000
Step 2: To reverse the accumulated depreciation on that asset, debit the accumulated depreciation account. Credit the disposal account with the asset's total accumulated depreciation as at the date of disposal. At this stage, the fixed assets movement schedule of the company will be helpful to determine the accrued depreciation of that asset only.
- Debit: Accumulated Depreciation $500
- Credit: Disposal $500
Step 3: To record the asset's selling price and actual receipt of sales proceeds, debit cash or bank account, and credit the disposal account with the disposal value or selling price. If the asset is sold on credit, then debit the debtor account instead of cash or bank.
- Debit: Cash $200
- Credit: Disposal $200
Step 4: Finally, pass the entry needed to close off the disposal account at zero by either recording a profit or loss on the sale. If the disposal account has a credit balance then, it means that the asset was sold at a profit, while if the balance is on the debit side, then the asset was disposed of at a loss.
To record the gain on disposal, debit the disposal account and credit the profit and loss statement with the balance. Conversely, to record the loss on disposal, debit the profit and loss account and credit the disposal account with the balance on the disposal account. These entries will close off the disposal account at zero.
- Debit: Loss on Disposal A/c with $300
- Credit: Disposal A/c with $300