When the fixed assets of a business firms are sold and if any profit is earned out of the sales proceeds then it will be booked under profit on sale of fixed assets account. Fixed assets, here, we mean the assets against which the deprecation is charged. These fixed assets are sold, either they become useless or the business firm wants to purchase the latest type of fixed assets which can give better performance.

For example a machinery was sold for Rs.60000/= and the written down value of the machinery was Rs.50000/=. In this case, there will be a profit for Rs.10000/= and will be shown under profit on sale of fixed assets account.

Accounting Treatment of Profit on Sale of Fixed Assets

a) In case of receipt of cash or cheque for sale proceeds:-

Type of voucher to be prepared:- Cash or Bank Receipt Voucher

Entry to be made

Debit:- Cash Account

or

Bank Account

Credit:- Fixed Assets Account

Credit:- Profit on Sale of Fixed Assets Account

b) In case of sale of assets on credit:-

Type of voucher to be prepared:- Journal Voucher

Entry to be made

Debit:-  Personal Account of Purchaser

Credit:- Fixed Assets Account

Credit:- Profit on Sale of Fixed Assets Account

Note:- Fixed asset is not a trading item. Therefore, no sale voucher will be prepared for sale of fixed assets.

Treatment of Profit of Sale of Fixed Assets in Final Accounts

The profit on sale of fixed assets is shown in credit side of profit and loss account since it is the indirect income.

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