Last reviewed: July 2026.
This guide focuses on the journal entries and ledger sequence for fixed asset disposals. It shows how to remove cost and accumulated depreciation, record proceeds and close the balancing gain or loss.
For the broader IAS 16 framework—including derecognition, held-for-sale classification, revalued assets, trade-ins, part disposals and control procedures—read the fixed asset disposal accounting guide.
Core disposal calculations
Carrying amount = Cost or revalued amount − Accumulated depreciation − Accumulated impairment
Gain or loss = Net disposal proceeds − Carrying amount at disposal date
A positive result is a gain. A negative result is a loss. Before posting the disposal, update depreciation to the disposal date unless depreciation has already ceased under the applicable held-for-sale requirements.
Information required before posting
- the exact asset or component identification number;
- recorded cost or revalued amount;
- accumulated depreciation and impairment at the disposal date;
- cash, receivable, trade-in value or other consideration;
- direct disposal costs, where relevant;
- the authorised disposal date and supporting evidence.
Method 1: Separate disposal account
| Step | Debit | Credit | Purpose |
|---|---|---|---|
| 1 | Disposal account | PPE cost account | Transfers the asset’s recorded cost out of PPE. |
| 2 | Accumulated depreciation | Disposal account | Removes depreciation related to the asset. |
| 3 | Cash or receivable | Disposal account | Records disposal proceeds. |
| 4A | Disposal account | Gain on disposal | Closes a credit balance as a gain. |
| 4B | Loss on disposal | Disposal account | Closes a debit balance as a loss. |
Worked example: disposal at a gain
A machine has the following information at its disposal date:
| Detail | CU |
|---|---|
| Cost | 100,000 |
| Accumulated depreciation before current-period charge | 60,000 |
| Depreciation to disposal date | 5,000 |
| Accumulated depreciation at disposal | 65,000 |
| Carrying amount | 35,000 |
| Cash proceeds | 42,000 |
| Gain | 7,000 |
Entry 1 — Depreciation to the disposal date
Debit: Depreciation expense 5,000 CU
Credit: Accumulated depreciation 5,000 CU
Entry 2 — Transfer the asset’s cost
Debit: Disposal account 100,000 CU
Credit: Machine cost 100,000 CU
Entry 3 — Remove accumulated depreciation
Debit: Accumulated depreciation 65,000 CU
Credit: Disposal account 65,000 CU
Entry 4 — Record proceeds
Debit: Cash 42,000 CU
Credit: Disposal account 42,000 CU
Entry 5 — Close the gain
The disposal account has a 7,000 CU credit balance.
Debit: Disposal account 7,000 CU
Credit: Gain on disposal 7,000 CU
Disposal-account check
| Debit side | CU | Credit side | CU |
|---|---|---|---|
| Asset cost | 100,000 | Accumulated depreciation | 65,000 |
| Gain transferred | 7,000 | Cash proceeds | 42,000 |
| Total | 107,000 | Total | 107,000 |
Method 2: Direct compound journal
The same disposal can be recorded without a separate disposal account:
Debit: Cash 42,000 CU
Debit: Accumulated depreciation 65,000 CU
Credit: Machine cost 100,000 CU
Credit: Gain on disposal 7,000 CU
Total debits and credits are both 107,000 CU. A direct journal is efficient, but the working paper should still show the carrying amount and gain-or-loss calculation.
Worked example: disposal at a loss
If the machine is instead sold for 30,000 CU, its carrying amount remains 35,000 CU and the loss is 5,000 CU.
Debit: Cash 30,000 CU
Debit: Accumulated depreciation 65,000 CU
Debit: Loss on disposal 5,000 CU
Credit: Machine cost 100,000 CU
Scrapping an asset with no proceeds
If an asset is scrapped and has a remaining carrying amount, that amount becomes a loss on derecognition. For an asset costing 50,000 CU with accumulated depreciation of 44,000 CU:
Debit: Accumulated depreciation 44,000 CU
Debit: Loss on disposal 6,000 CU
Credit: Asset cost 50,000 CU
If the carrying amount is zero, remove equal cost and accumulated depreciation amounts. No gain or loss arises unless proceeds or additional disposal costs exist.
Disposal costs and net proceeds
Direct costs such as broker fees, transport or legal charges may reduce net proceeds for the gain-or-loss calculation. Record gross proceeds and costs separately when that produces a clearer audit trail.
Example: gross sale proceeds are 40,000 CU, direct disposal costs are 2,000 CU and carrying amount is 35,000 CU. Net proceeds are 38,000 CU and the gain is 3,000 CU.
Trade-in entries
A trade-in should not be recorded merely as a cash payment for the new asset. The working paper should separately show:
- derecognition of the old asset;
- consideration attributed to the old asset;
- the resulting gain or loss;
- recognition of the new asset and cash payable.
The measurement of the new asset and any non-cash consideration depends on the applicable IAS 16 requirements. The hub guide explains the broader accounting treatment.
Part disposal or component replacement
When only an identifiable component is derecognised, remove that component’s estimated cost and related accumulated depreciation rather than the whole asset. The disposal working should document how the component amount was identified or estimated.
Posting and reconciliation checklist
- confirm that depreciation was updated to the correct date;
- use carrying amount—not original cost—to calculate the gain or loss;
- remove both cost and related accumulated depreciation;
- agree proceeds to the invoice, receivable and bank evidence;
- post disposal costs consistently with the calculation;
- ensure the journal balances;
- remove the exact asset or component from the register;
- reconcile the disposal schedule to the general ledger.
Related accounting guides
- Fixed asset disposal accounting under IAS 16
- Ledger accounts explained
- Fixed asset register and general ledger reconciliation
- Applying depreciation methods
Authoritative references
Key takeaway
A disposal entry must remove the asset’s recorded cost and related accumulated depreciation, record the actual consideration and recognise only the difference from carrying amount as a gain or loss. A balanced journal is not enough by itself—the entry must also agree with the specific asset record and supporting disposal evidence.