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Depreciation - disposal account
Accountancy
Hi sir may I know if the concept of disposal account could be explained in detail as the lectures are not covering the concept in detail . It’s directly going to sums . I am getting confused as when to use that and the flow of entries . As per what I could understand from the book is that it’ helps in calculating profit or loss
Answers (2)
First, the cost of the asset is transferred to the disposal account to remove it from the books. Then, the accumulated depreciation related to that asset is also transferred to the disposal account. After that, the sale proceeds received from the buyer are recorded in the disposal account. Whenever an asset is sold, we need to compare the sale proceeds with the written down value of the asset. The written down value is the original cost minus accumulated depreciation. Instead of doing this comparison mentally, we transfer the asset to the disposal account.
CA Suraj Lakhotia Admin
First, the cost of the asset is transferred to the disposal account to remove it from the books. Then, the accumulated depreciation related to that asset is also transferred to the disposal account. After that, the sale proceeds received from the buyer are recorded in the disposal account. Whenever an asset is sold, we need to compare the sale proceeds with the written down value of the asset. The written down value is the original cost minus accumulated depreciation. Instead of doing this comparison mentally, we transfer the asset to the disposal account.
Once all these entries are made, the balance in the disposal account automatically shows profit or loss. If the credit side is more than the debit side, it means there is a profit, and if the debit side is more, it means there is a loss.
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