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Chapter 1.9® - Selling Capital Assets - Sale of Simulation System Journal Entries & Effects on Accumulated Amortization

Accounting for the Sale of Capital assets is best explained through an example. Consider a simulation system costing \$10,000 with accumulated amortization of \$6000 as of December 31st, 2008. This system is being amortized using the straight-line method at a rate of \$2000/year amortization with no salvage value. The system is discarded as of April 30th, 2009.

Step 1 is to bring amortization expense up to par. Thus, amortization expense as of April 30th, 2009 is:

 Amortization Expense = \$2000 / year x 4/12 = \$667 Accumulated Amortization as of April 30th, 2009 = \$6000 + \$667 = \$6,667

Now consider 3 separate scenarios, where the organization receives different Cash amounts for the simulation system.

i) Sale at Book Value on April 30th, 2009

 April 30th, 2009 Account Name Debit Credit Dr. Accumulated Amortization, Simulation System \$6,667 Dr. Cash \$1,333 Cr. Simulation System \$8,000 To record the sale of Simulation system for \$1,333 cash.

ii) Sale above Book Value on April 30th, 2009

 April 30th, 2009 Account Name Debit Credit Dr. Accumulated Amortization, Simulation System \$6,667 Dr. Cash \$5,000 Cr. Simulation System \$8,000 Cr. Gain on Disposal of Simulation System \$3,667 To record the sale of Simulation system for \$5000 cash.

iii) Sale below Book Value on April 30th, 2009

 April 30th, 2009 Account Name Debit Credit Dr. Accumulated Amortization, Simulation System \$6,667 Dr. Cash \$800 Dr. Loss on Disposal of Simulation System \$533 Cr. Simulation System \$8,000 To record the sale of Simulation system for \$800 cash.