Disposal of Revalued Asset Accounting Entries
When a revalued asset is disposed of, it involves several accounting entries to remove the asset and its associated revaluation surplus from the books. Here are the steps and journal entries involved in this process.
Scenario: Disposal of a Revalued Asset
Assume a piece of machinery was originally purchased for ₹200,000, later revalued to ₹250,000, with accumulated depreciation of ₹60,000 (based on the original cost). The asset is sold for ₹180,000.
1. Remove the Accumulated Depreciation
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Accumulated Depreciation A/c | 60,000 | |
| To Machinery A/c | 60,000 | |
| (Being removal of accumulated depreciation) |
Explanation:
- Accumulated Depreciation A/c is debited to remove the accumulated depreciation from the books.
- Machinery A/c is credited to reflect the reduction in the asset's value.
2. Remove the Revaluation Surplus
Assuming the revaluation surplus recorded earlier is ₹50,000.
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Revaluation Surplus A/c | 50,000 | |
| To Machinery A/c | 50,000 | |
| (Being removal of revaluation surplus) |
Explanation:
- Revaluation Surplus A/c is debited to remove the revaluation surplus from the books.
- Machinery A/c is credited to reflect the reduction in the asset's revalued amount.
3. Record the Sale of the Asset
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Cash/Bank A/c | 180,000 | |
| Loss on Disposal of Asset A/c | 10,000 | |
| To Machinery A/c | 200,000 | |
| (Being sale of machinery and recognition of loss) |
Explanation:
- Cash/Bank A/c is debited to reflect the cash inflow from the sale.
- Loss on Disposal of Asset A/c is debited to record the loss on sale.
- Machinery A/c is credited to remove the asset from the books.
Summary of Entries
Remove Accumulated Depreciation:
- Debit Accumulated Depreciation A/c
- Credit Machinery A/c
Remove Revaluation Surplus:
- Debit Revaluation Surplus A/c
- Credit Machinery A/c
Record Sale of the Asset:
- Debit Cash/Bank A/c
- Debit Loss on Disposal of Asset A/c
- Credit Machinery A/c
