Financial Accounting: An Integrated Statements Approach, 2nd Edition

Selling Fixed Assets

The entry to record the sale of a fixed asset is similar to the entry illustrated above, ex-

cept that the cash or other asset received must also be recorded. If the selling price is

more than the book value of the asset, the transaction results in a gain. If the selling

price is less than the book value, there is a loss. For example, H.J. Heinz Companyrec-

ognized a gain of $18.2 million on the sale of an office building in the United Kingdom

because the selling price exceeded the book value.

To illustrate a sale transaction, assume that equipment is acquired at a cost of

$10,000, has no residual value, and is depreciated at an annual straight-line rate of 10%.

The building is sold for cash on October 12 of the eighth year of its use. The balance

of the accumulated depreciation account as of the preceding December 31 is $7,600.

The depreciation for the nine months of the current year is $750 ($10,000 10% –– 129 ).

The entry to update the depreciation on October 12 is as follows:

After the current depreciation is recorded, the book value of the asset is $2,250 ($10,000 

$7,750). The entry to record the sale, assuming the asset was sold for $1,000 is as follows:

INTANGIBLE ASSETS

Patents, copyrights, trademarks, and goodwill are long-lived assets that are useful in

the operations of a business and are not held for sale. These assets are called intangi-

ble assetsbecause they do not exist physically.

The basic principles of accounting for intangible assets are like those described ear-

lier for fixed assets. The major concerns are determining (1) the initial cost and (2) the

amortization—the amount of cost to transfer to expense. Amortization results from the

passage of time or a decline in the usefulness of the intangible asset.

The loss can be verified as the difference between the cash proceeds upon sale and the

book value of the asset, as follows:

Cash proceeds $1,000

Less: Equipment initial cost $10,000

Accumulated depreciation 7,750

Equipment book value 2,250

Loss on disposal of fixed asset $1,250

412 Chapter 9 Fixed Assets and Intangible Assets

Oct. 12 Depreciation Expense 750

Accumulated Depreciation 750

Oct. 12 Cash 1,000

Accumulated Depreciation 7,750

Loss on Disposal of Fixed Asset 1,250

Equipment 10,000

Describe and account for

intangible assets, such as

patents, copyrights, and

goodwill.

4

Q.Provide the journal en-

try if the asset described in

the text illustration was

sold for $2,800.

A.Oct. 12

Cash 2,800

Accum. Depr. 7,750

Gain on

Disposal of

Fixed Asset 550

Equipment 10,000

SCF BS IS

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SCF BS IS

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