more-arw search

Q&A Forum

Accounting For Loss On Sale Of An Asset

accounting for loss on sale of an assetHello, I'm currently reviewing our auditors adjusting entries and have a question concerning calculating the loss on sale of disposal. If I buy a truck on Jan 1 2014, and it gets into an accident and is written off on June 1 2014, I believe that I would have to calculate the amortization until June 1 2014 before calculating the gain or loss from insurance. The auditors excluded this calculation and I'm not sure that is correct. Sorry for a basic question but it isn't something I deal with very much, and all examples I could find on the internet don't deal with half year calculations. Thanks


Topic Expert
Scott MacDonald
Title: President/Owner
Company: AlphaMac Resources, Inc.
(President/Owner, AlphaMac Resources, Inc.) |

Technically, you should depreciate it for 6 months then write off the remaining value at the time it is destroyed. Need to ask your auditors why they wrote off the whole amount. (I am assuming they Dr. Loss on Disposal and Cr. Asset Cost.)

Your question also talks about gain or loss for insurance purposes, I think. That is a different question. Book loss (Cost less depreciation) is not necessarily what you would claim for insurance purposes. Typically insurance policies are written for a replacement value less a deductible which would probably be very different from your net book value you wrote off.

So for example. Let's say your Net Book value (cost less depreciation) at time of the wreck was $15,000. You Dr. Gain/Loss on Disposal and adjust the asset and accumulated depreciation accounts for a net Credit of $15,000

However, let's assume you make a claim to your insurance company and the replacement value is $16,000 and you have a $500 deductible. The insurance is going to cut you a check for $15,500. Your entry is Dr. Cash for $15,500 and you Cr. Gain/Loss on Disposal for $15,500. Your Gain/Loss account is now showing a net gain of $500. (Proceeds less net book value - $15,500 minus $15,000)

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

Your thoughts are correct. I would ask them why they left the Accum Depreciation out. One of our company cars was in a wreck in Oct and we wrote it off and had to account for the Depreciation through the date of the accident.

Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |

Perhaps they are using a half year convention?

Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

My take here is that Depreciation was NOT (from my reading) computed (Jan1-Jun1). The auditors did NOT find it relevant to compute the depreciation if they are going to compute for the gain/loss in the same fiscal year.


Get Free Membership

By signing up, you will receive emails from Proformative regarding Proformative programs, events, community news and activity. You can withdraw your consent at any time. Contact Us.

Business Exchange

Browse the Business Exchange to find information, resources and peer reviews to help you select the right solution for your business.

Learn more

Contribute to Community

If you’re interested in learning more about contributing to your Proformative community, we have many ways for you to get involved. Please email [email protected] to learn more about becoming a speaker or contributing to the blogs/Q&A Forum.