Departments/colleges are prohibited from conducting their own sales of surplus property and from placing "sale" advertisements or from disposing of items independently that may be deemed to have value. The Procurement Services Department and Accounting Manager are responsible for assisting departments in identifying disposal alternatives [i.e. Trade-ins, used components or parts, scrap, etc.], establishing relative values and recommending economically appropriate actions. The Asst. Vice President for Finance and Operations must authorize any
alternate method of disposal of university property. The Accounting Manager should be consulted on the sale of scrap material such as waste paper, non-precious metals, automobile batteries, and salvaged building materials. If necessary the Procurement Services Manager will be consulted for bids. Normally at least two competitive quotes will be obtained, based on quantity of scrap available. Net proceeds shall be credited to the department selling the
scrap material. The library periodically eliminates duplicate, antiquated, or donated material inappropriate for the collection. The Accounting Manager will assist in the disposal of library materials by a sale or other appropriate disposition. Net proceeds shall be credited to the library.Disposal of Surplus Property
Alternate Methods of Disposal of Surplus Property
Disposal of Scrap Material
Disposal of Library Materials
The disposal of assets involves eliminating assets from the accounting records. This is needed to completely remove all traces of an asset from the balance sheet [known as derecognition]. An asset disposal may require the recording of a gain or loss on the transaction in the reporting period when the disposal occurs. For the purposes of this discussion, we will assume that the asset being disposed of is a fixed asset.
The overall concept for the accounting for asset disposals is to reverse both the recorded cost of the fixed asset and the corresponding amount of accumulated depreciation. Any remaining difference between the two is recognized as either a gain or a loss. The gain or loss is calculated as the net disposal proceeds, minus the asset’s carrying value.
The options for accounting for the disposal of assets are noted below. A proper fixed asset disposal is of some importance from the perspective of maintaining a clean balance sheet, so that the recorded balances of fixed assets and accumulated depreciation properly reflect the assets actually owned by a business.
No Proceeds, Fully Depreciated
When there are no proceeds from the sale of a fixed asset and the asset is fully depreciated, debit all accumulated depreciation and credit the fixed asset.
Loss on Sale
When there is a loss on the sale of a fixed asset, debit cash for the amount received, debit all accumulated depreciation, debit the loss on sale of asset account, and credit the fixed asset.
Gain on Sale
When there is a gain on the sale of a fixed asset, debit cash for the amount received, debit all accumulated depreciation, credit the fixed asset, and credit the gain on sale of asset account.
Example of Asset Disposal
For example, ABC International buys a machine for $50,000 and recognizes $5,000 of depreciation per year over the following ten years. At that time, the machine is fully depreciated, ABC gives it away, and records the following entry.
| Debit | Credit | |
| Accumulated depreciation | 50,000 | |
| Machine asset | 50,000 |
ABC International sells a $100,000 machine for $35,000 in cash, after having compiled $70,000 of accumulated depreciation. The entry is:
| Debit | Credit | |
| Cash | 35,000 | |
| Accumulated depreciation | 70,000 | |
| Gain on asset disposal | 5,000 | |
| Machine asset | 100,000 |
ABC International sells another machine that had originally cost it $40,000 for $25,000 in cash. The company had compiled $10,000 of accumulated depreciation on the machine. The entry is:
| Debit | Credit | |
| Cash | 25,000 | |
| Accumulated depreciation | 10,000 | |
| Loss on asset disposal | 5,000 | |
| Machine asset | 40,000 |