Selling a Depreciable Asset

Selling a depreciated asset works almost identically to selling an asset that you haven’t been depreciating. When you sell the asset, you need to back out the asset’s account balance. You also need to back out the asset’s accumulated depreciation (which is the only thing that’s different from selling an asset that you haven’t been depreciating). You need to record the cash (or whatever) that somebody pays you for the asset. Finally, you count as a gain or a loss any difference between what you sell the asset for and what its net-of-accumulated-depreciation (or book value) is.

This process sounds terribly complicated, but an example helps. Suppose that you purchased a £5000 piece of machinery and have accumulated £500 of depreciation thus far. Consequently, the fixed asset account shows a £5000 debit balance and the asset’s accumulated depreciation account shows a £500 credit balance. Its net book value, in other words, is £4500. Suppose also that you sell the machinery for £4750 in cash. So overall you make a gain of £250.