depreciation A/c c) For closing the depreciation account Profit and loss A/c Dr. To Depreciation A/c On sale of asset d) For transferring accumulated depreciation on asset sold to asset account Provision for depreciation A/c Dr. To Asset A/c * Note : After making this entry, the asset account gets reduced by the amount of accumulated depreciation upto the date of sale. In other words the asset appears at book value.
e) For sale of asset Bank A/c Dr. Profit and loss A/c Dr. To Asset A/c * Note: Profit and loss A/c will be credited if there is profit on sale. Accountancy Tutorial note Transactions relating to sale of asset may also be transferred to a temporary account called asset disposal account and completed.
Each time an asset is sold, a separate asset disposal account is opened and the balance in the asset account is transferred to asset disposal account. All transactions relating to sale are entered in the asset disposal account. The asset disposal account is closed immediately after the sale. Illustration Calculate the amount of depreciation and depreciation rate from the following by using ‘straight line method’.
Also give journal entries for the first two years. The books are closed on 31st December every year. January , Payment to vendor for purchase of machinery ` , , January , Transportation cost ` , January , Installation cost ` , Estimated scrap value at the end of the life ` , Estimated life years Solution Original cost of the asset − Estimated scrap value Amount of depreciation per year = Estimated useful life of the asset in years = , , , , , = ` , per year Rate of depreciation per year = Amount of depreciation Original cost x = , , , x = % Note : Cost of the asset = Purchase price + Transportation cost + Installation cost = , , + , + , = ` , , Journal