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PART D: RECORDING TRANSACTIONS AND EVENTS 

 

158

 

DISPOSAL OF MACHINERY 

20X7 

 

 

$      

20X7 

 

 

$      

31 Mar  Machinery account 

 

15,000 

31 Mar  Account receivable (sale 

 

 

 

 

 

   

price) 

 

8,000 

 

 

 

31 Mar  Accumulated depreciation 

 

6,750 

1 Dec 

Machinery 

 

15,000 

1 Dec 

Cash (sale price) 

 

2,500 

 

 

 

1 Dec 

Accumulated depreciation 

 

8,750 

 

 

 

31 Dec  P/L a/c (loss on 

 

 

 

 

            

 

    disposal) 

 

  4,000 

 

 

 

30,000 

 

 

 

30,000 

You should be able to calculate that there was a loss on the first disposal of $250, and on the second 

disposal of $3,750, giving a total loss of $4,000. 

Workings 

1 

At 1 January 20X7, accumulated depreciation on the machines will be: 

2 machines × 2 years × 

$15,000

5

 per machine p.a. = $12,000, or $6,000 per machine 

2 Monthly 

depreciation 

is 

$3,000

12

 = $250 per machine per month 

3 

The machines are disposed of in 20X7 

(a) 

On 31 March – after 3 months of the year 

Depreciation for the year on the machine = 3 months × $250 = $750 

(b) 

On 1 December – after 11 months of the year 

Depreciation for the year on the machine = 11 months × $250 = $2,750  

 

6.8 Example: disposal of a revalued asset 

Returning to the case of the revalued asset in Section 5, suppose that two years after the revaluation to 

$150,000 the land and building are sold for $200,000. (Assume that the entity does not transfer the 

excess depreciation from the revaluation surplus to retained earnings.)  

Required 

What is the profit on disposal? 

Solution 

The profit on disposal is the difference between the disposal proceeds and the carrying amount of the 

asset. The carrying amount will be the revalued amount less subsequent depreciation on the building. 

 

 

 $ 

 $ 

Net disposal proceeds 

 

 200,000 

 

 

 

Revalued amount  

 150,000 

 

Less two years depreciation (3,000 × 2) 

  (6,000) 

 

Carrying amount 

 

 

(144,000) 

Profit on disposal 

 

   56,000 

The revaluation gain of $105,000 can now be transferred to retained earnings as the asset has been 

disposed of and the revaluation gain is now realised. 

BUILDING – COST 

 

 

$      

 

 

$      

Balance b/d 

 

75,000 

 

Disposal account 

 

75,000 

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CHAPTER 8  

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  TANGIBLE NON-CURRENT ASSETS