Sale of Asset at a Profit or Loss

Where the asset is maintained at its net value, the value of the asset is shown at its net value in the books of accounts.

At the end of every accounting period, value equal to the depreciation to be charged is transferred from the asset account to the depreciation account treating it as a loss.

There are two transactions involved in the sale of such asset. The transaction of sale of asset and the transaction of recording profit/loss on the sale of asset. They are two distinct transactions. Where there is neither profit/loss on sale, the second transaction would be irrelevant.

In financial accounting we generally combine both the transactions which should be avoided here to get a clear understanding.

Recording Asset Sale	Dr. Cash/Bank a/c Cr. Asset a/c	Current Non-Current
Recording Gain	Dr. Asset a/c Cr. Profit/Loss Appropriation a/c	Non-Current Non-Current
Recording Loss	Dr. Profit/Loss Appropriation a/c Cr. Asset a/c	Non-Current Non-Current

When sale is recorded using Asset Disposal a/c

Where a depreciation reserve account is being maintained, the value of the asset is shown at its cost in the books of accounts.

At the end of every accounting period, value equal to the depreciation to be charged on the asset is credited to the depreciation reserve account by charging the profit and loss account.

The reserve account is carried forward over the accounting periods and is shown on the liabilities side of the balance sheet or is adjusted from the value of the relevant asset on the assets side of the balance sheet. At the time of sale or disposal of the asset, the depreciation reserve account is closed by transfer to the relevant asset account thereby bringing down the asset to its real value.

Even in the sale of this asset, there are two transactions involved. The transaction of sale of asset and the transaction of recording profit/loss on the sale of asset. They are two distinct transactions. Where there is neither profit/loss on sale, the second transaction would be irrelevant.

Writing off Depreciation Reserve	Dr. Depreciation Reserve a/c Cr. Asset a/c	Non-Current Non-Current
Recording Asset Sale	Dr. Cash/Bank a/c Cr. Asset a/c	Current Non-Current
Recording Gain	Dr. Asset a/c Cr. Profit/Loss Appropriation a/c	Non-Current Non-Current
Recording Loss	Dr. Profit/Loss Appropriation a/c Cr. Asset a/c	Non-Current Non-Current

When sale is recorded using Asset Disposal a/c

The transaction relating to sale of an asset would be a cross transaction where the other account involved in the transaction is a current account, i.e. Cash a/c or Bank a/c (where the sale proceed is received in cash or by cheque) a current asset or current liability (by the buyer taking over a liability).

Recording Asset Sale	Dr. Cash/Bank a/c Cr. Asset a/c	Current Non-Current

Where the other account involved is a non-current account, the transaction would not be a cross transaction and as such would not result in a change in working capital (fund).

Recording Asset Sale	Dr. Machinery/Debentures a/c Cr. Asset a/c	Non-Current Non-Current

Giving away an Asset for clearing a long term liability, giving an asset in exchange of another asset would be examples of such transactions.