E T B Best PGDM Institute in Delhi PGDM Course in Delhi MBA AGU Best PGDM College in Delhi NCR

selling expenses of fixed assets.

it is said that expense incurred for sale of an asset should be debited to asset account.why is it so?
explain with the help of the example.

asked Sep 1, 2015 in Depreciation, Provisions and Reserves. by kajol kumari (22 points) 850 views

1 Answer

0 votes
To know the exact amount of profit or loss made on the sale of a fixed asset, difference between the net sales value (sales price minus selling expenses) and book value of the asset is calculated.  So while doing accounting the selling expenses incurred on selling the fixed asset are debited to the asset account. Practically it amounts to reducing the sales value.  This is so because sales value is credited to the asset account.  If sales expenses are debited to the asset account, it amounts to a deduction from sales value.
answered Sep 1, 2015 by jbsclasses (3,969 points)
sir,can you please give an example for above situation.journal entries for selling expenses?
For example there is an old machine of book value Rs.8000 which is sold for Rs.7000 and we had to pay a commission of Rs.500 to the broker for selling that machine.  Net sale proceeds are Rs6500 (Rs.7000-Rs.500).  Loss on sale of machine is Rs.1500 (Rs.8000 - Rs.6500).  There can be two ways we could account for this:

Alternative I:   Cash A/c        Dr.  6500

                         P & L A/c        Dr.  1500

                           To Machine A/c               8000

Alternative II:  Machine A/c  Dr,    500

                           To Cash A/c                        500

                          Cash A/c        Dr.   6500

                           P & L A/c       Dr.   1500

                             To Machine A/c                8000

Second alternative is better because it clearly shows that Rs.500 has been incurred to sell the product which is actually capitalised.  I would also like to mention here that sometimes in case of mines etc. the lessee has to level the land etc.  when that land is handed back to the owner after completion of the lease.  These expenses of levelling etc. are also debited to the lease account etc.
sir, in the second alternative the debit side and the credit side does not tally?
The machine is sold for Rs.6500.  By mistake Rs.7000 was typed there.  I have rectified it above.