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.
