Question

Hi,

I have an accounting question - how is the sale of equipment at an amount greater than its book value recorded? If the equipment is sold at an amount less than its book value how is that recorded? I'm confused on this nas was hoping for some help.

Thanks!

Answer 1

Lets take two examples.

Example 1 : Sale of equipment at an amount greater than its book value recorded

Suppose a company buys an equipment for $100,000 & the depreciation expense per year is $5,000. Say after 10 years the company sold the equipment for $65,000. Prepare journal entry for sale of equipment.

Solution :

Note 1 :

Accumulated Depreciation on date of sales ( ie after 10 years) = $5,000 * 10 years = $50,000

Note 2:

Net book value of the equipment as on date of sales = Equipment cost - Accumulated Depreciation

= $100,000 - $50,000 = $50,000

Note 3 : Since as on date of sales ,the net book value of the equipment is $50,000 & selling price is $65,000, there is a gain on disposal of asset = $15,000 ($65,000 - $50,000).

Journal Entry for sale of equipment.

Accounts titles & explanation	Debit ($)	Credit ($)
Cash	65,000
Accumulated Depreciation - Equipment	50,000
Gain on disposal of asset		15,000
Equipment		100,000

Example 2  : Sale of equipment at an amount less than its book value recorded.

Every thing remains same in Example 1 , except that the company sold the equipment for $30,000. Prepare journal entry for sale of equipment.

Solution :

Note 1 & Note 2 above reamins the same.

Note 3 : Since as on date of sales ,the net book value of the equipment is $50,000 & selling price is $30,000, there is a loss on disposal of asset = $20,000 ($30,000 - $50,000).

Journal Entry for sale of equipment.

Accounts titles & explanation	Debit ($)	Credit ($)
Cash	30,000
Accumulated Depreciation - Equipment	50,000
Loss on disposal of asset	20,000
Equipment		100,000