★ Must-know
🔄 Process — Recording a disposal of a non-current asset involves transferring the asset’s Carrying value, recording the Proceeds on disposal, and transferring the resulting Profit or loss on disposal.
📐 Formula — Profit or loss on disposal equals the Proceeds on disposal minus the Carrying value of the asset.
Further detail
Value out, proceeds in, result calculated
1. In accounting for the disposal of a non-current asset, is disposal limited to receiving cash, or can it include a trade-in as well?
2. Which set of actions best describes the accounting treatment for disposing of a non-current asset?
3. What does the term Carrying value mean for a non-current asset when measuring its disposal?
What does disposal of a non-current asset include?
Both a cash sale and a trade-in of the asset.
What is involved in recording disposal of a non-current asset?
Transferring carrying value, recording proceeds, and transferring profit or loss.
What is carrying value of a non-current asset?
The amount recorded after accumulated depreciation used to measure disposal.
How is profit or loss on disposal calculated?
Proceeds on disposal minus the carrying value of the asset.
What accounts must be removed when an asset is disposed of?
Both the asset account and its accumulated depreciation account.
Which account is debited for the full amount in a cash sale?
Bank is debited for the full amount received.
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