Tag Archives: Fixed Asset

MoneyWorks | Disposal of Fixed Assets

Software: MoneyWorks accounting software

An Office Equipment which has a cost of $2,250.00 and accumulated depreciation of $1,500.00 as of your Balance Sheet report; then you sell off this asset at $500.00 before GST.

Balance Sheet

Office Equipment: 2,250.00

Accumulated Dep – Office Equipment. (1,500.00)

To record the disposal of fixed asset in MoneyWorks, first you create a new expense account (You may check with your accountant on the type of account use), and name it as “Disposal of Fixed Asset”.

You use the Sales Invoice transaction to record an invoice to your customer and use the “Disposal of Fixed Asset” account under the Account tab. The double entries for this Sales Invoice will be:

Debit Accounts Receivable: 535.00

Credit Disposal of Fixed Asset: 500.00

Credit GST Output (based on 7% GST): 35.00

Next, you pass a journal, the journal detail as:

Debit: Accumulated Dep – Office Equipment: 1,500.00

Debit: Disposal of Fixed Asset: 750.00

Credit Office Equipment: 2,250.00

From the Profit and Loss report, there will be a 250.00 debit balance at the “Disposal of Fixed Asset” account.

Both “Office Equipment” account and “Accumulated Dep – Office Equipment” account will be zero in balance as the balances had transferred to the “Disposal of Fixed Asset” account.

Depreciation

Software: MoneyWorks accounting software

MoneyWorks is accounting software. It does not have a built in Fixed Asset module, which tracks the purchase and allocation of asset, neither it has a depreciation calculator that tracks the monthly or yearly depreciation of its useful life.

The workaround method that you may consider using to track the purchases and allocation of asset is to enter a memo in the description field of the Purchase Invoice when the asset is purchased.

You may record the warranty information and the location (which department) and the user of the asset (if it is an office equipment such as a computer). The double entry for the Purchase Invoice transaction is debiting the Fixed Asset account and crediting Accounts Payable (You may also scan the original bill and warranty card into PDF and attach it to the Purchase Invoice for future reference).

A Journal will be used to track the depreciation of the asset. The double entry is debit Depreciation expense and credit Accumulated Depreciation account (Fixed Asset account type). Besides, you may also record the depreciation detail such as Asset name, Purchase Invoice number, years of depreciation, monthly or yearly depreciation amount (this information is useful in disposal of fixed asset or checking of warranty status).

Depreciation journal

Next, check the Make Recurring checkbox and set the recurring detail of this journal; such as next recurring date and recur for how much more time.

Recurring transaction

Disposal of Fixed Assets in QuickBooks

In business, we do dispose of Fixed Assets after it usable life. In QuickBooks, how are we going to record this transaction?


Example 1:

Acquisition cost of a Conference Table (Under Furniture & Fitting) is $3,000.00. The depreciation method used for Furniture & Fitting is a straight line method; with 3 years of usable life.

If this conference table still has 1 year of usable life; That is, the Net Book Value of this conference table is $1,000.00.

How to record this transaction in QuickBooks?

First, we need to create a new Disposal of Fixed Asset account (use Other Income account type, this account will be shown in the Profit & Loss report). Next, we create a General Journal:

    Debit Accumulated Depreciation – Furniture & Fitting account: 2,000.00

    Debit Disposal of Fixed Asset account: 1,000.00

    Credit Acquisition cost – Furniture & Fitting account: 3,000.00

In the Balance Sheet report, both the Acquisition cost and Accumulated Depreciation account of the Furniture & Fitting will be zeroed off. As for the Profit & Loss report, it will show a debit balance (loss) in the Disposal of Fixed Asset account for the amount of $1,000.00.


Example 2:

Now, if you sell this conference table at $1,500.00 (that is, with a gain of $500.00); how are you going to record this transaction?

In the General Journal:

    Debit Accumulated Depreciation – Furniture & Fitting account: 2,000.00

    Debit Cash at Bank: 1,500.00

    Credit Acquisition cost – Furniture & Fitting account: 3,000.00        

    Credit Disposal of Fixed Asset account: 500.00

Note:  Debiting the Cash at Bank account will be the amount of money you get from the sale of Fixed Asset.  In this case, you do had a gain in sale of Fixed Asset. The crediting of Disposal of Fixed Asset account, for the amount of $500.00, is the profit made from the sale of Fixed Asset.

Why the profit from this sale was only $500.00 and not $1,500.00? In this case, we have to consider the fact that this fixed asset still has a year of depreciation (that is, $1,000.00). So, the gain from the sale of fixed asset is $1,500.00 – $1,000.00 = $500.00.