How is the net book value of an asset calculated?

cost − accumulated depreciation. It is the value at which the asset stands in the books.

An asset with a net book value of $4000 is sold for $4500. What is the result?

a profit of $500. The proceeds are more than the net book value.

Which account is credited with the cost of an asset when it is sold?

the asset account. The cost is taken out of the asset account and debited to disposal.

Where is a loss on disposal shown?

as an expense in the statement of profit or loss. A profit on disposal is added to gross profit as other income.

Equipment cost $5000, with depreciation to date of $3800. It is sold for $900. What is the result?

a loss of $300. Net book value is 1200, and 900 is 300 less.

Buying and selling non-current assets · Cambridge IGCSE Accounting (9

In plain words

When a non-current asset is sold, it has to be taken out of the books, along with all the depreciation that was charged on it. A disposal account collects the pieces and shows whether the sale made a profit or a loss.

6 things to know

A non-current asset bought on credit is recorded in the general journal: debit the asset account, credit the supplier.
When an asset is sold, three transfers are made to a disposal account.
One: the cost. Debit disposal, credit the asset account.
Two: the depreciation charged so far. Debit the provision for depreciation account, credit disposal.
Three: the sale proceeds. Debit bank, credit disposal.
The balance on the disposal account is the profit or loss. If the proceeds are more than the net book value there is a profit, which is added to income in the statement of profit or loss. If they are less there is a loss, which is an expense.

Worked example

A van that cost $18 000 has accumulated depreciation of $11 000. It is sold for $6200. Calculate the profit or loss on disposal.

Net book value = cost − accumulated depreciation = 18 000 − 11 000 = $7000.
Proceeds of $6200 are less than the net book value.
Loss on disposal = 7000 − 6200 = $800.

Tips and tricks

Compare the proceeds with the net book value, never with the cost.
The disposal account has the cost on the debit side, and the depreciation and the proceeds on the credit side. If the credit side is bigger, it is a profit.

5 questions, about 2 minutes.

It lands in your notebook with its questions as flashcards.

Buying and selling non-current assets: 5 questions and answers

These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.

How is the net book value of an asset calculated?
- cost + accumulated depreciation
- cost − accumulated depreciation (the answer)
- sale proceeds − cost
- cost − sale proceeds
It is the value at which the asset stands in the books.
An asset with a net book value of $4000 is sold for $4500. What is the result?
- a loss of $500
- a profit of $500 (the answer)
- a profit of $4500
- no profit or loss
The proceeds are more than the net book value.
Which account is credited with the cost of an asset when it is sold?
- the disposal account
- the asset account (the answer)
- the bank account
- the provision for depreciation account
The cost is taken out of the asset account and debited to disposal.
Where is a loss on disposal shown?
- as income in the statement of profit or loss
- as an expense in the statement of profit or loss (the answer)
- as a current asset
- in the capital account
A profit on disposal is added to gross profit as other income.
Equipment cost $5000, with depreciation to date of $3800. It is sold for $900. What is the result?
- a profit of $300
- a loss of $300 (the answer)
- a loss of $4100
- a profit of $900
Net book value is 1200, and 900 is 300 less.

5 questions

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Worksheet

2 questions, 6 marks. Write your answers on paper, then check them.

Buying and selling non-current assets

Cambridge IGCSE Accounting (9–1) 0985 · 6 marks · papermunch.org

Name ______________________________ Date ______________

A machine cost $9000 and has been depreciated by $6500. It is sold for $3100. Calculate the profit or loss on disposal.[3]
Show answerHide answer
A profit of $600. Net book value = 9000 − 6500 = 2500. 3100 − 2500 = 600.
I got this one
State the three entries made in a disposal account when a non-current asset is sold for cash.[3]
Show answerHide answer
Debit: the cost of the asset. Credit: the accumulated depreciation on the asset. Credit: the sale proceeds.
I got this one

Answers: Buying and selling non-current assets

1. A profit of $600. Net book value = 9000 − 6500 = 2500. 3100 − 2500 = 600.
2. Debit: the cost of the asset. Credit: the accumulated depreciation on the asset. Credit: the sale proceeds.