Question

Disposal of Asset During the year to 30 June 20X7, Eugene Ltd sold a non-current asset for $36,000. It had been acquired three years ago at a cost of $180,000. At the date of disposal of the asset, the accumulated depreciation was $138,000. What was the profit or loss on disposal, and what journal entries are needed to record the disposal?

Answer 1

The profit or loss on disposal of the asset is a loss of $6,000. The journal entries needed to record the disposal are: debit accumulated depreciation for $138,000 and credit the asset for $180,000, and debit loss on disposal for $6,000 and credit the asset for $36,000.

Step-by-step explanation:

To calculate the profit or loss on disposal of an asset, you need to subtract the accumulated depreciation from the cost of the asset. In this case, the cost of the asset is $180,000 and the accumulated depreciation is $138,000. So, the carrying value of the asset is $42,000 ($180,000 - $138,000).

Since the asset was sold for $36,000, there is a loss on disposal of $6,000 ($36,000 - $42,000). Therefore, the profit or loss on disposal of the asset is a loss of $6,000.

To record the disposal of the asset, you need to make two journal entries. First, you debit the accumulated depreciation account for $138,000 and credit the asset account for $180,000 to remove the asset from the books. Then, you debit the loss on disposal account for $6,000 and credit the asset account for $36,000 to record the loss on disposal.