Profit or Loss on Sale of Fixed Assets

Transcript

Profit or loss on Sale of Fixed Assets Example:- Building Purchased for 50 Lacs Building Sold for 70 Lacs Profit = 20 lacs If we are Builder Building is Stock We show Purchase and Sales PROFIT AND LOSS Expense Amt Income Amt Opening Stock Sales 7000000 Purchase 5000000 Closing Stock Profit 2000000 Total 7000000 Total 7000000 If we do some other business Building is Fixed Assets We show Profit or loss on sales PROFIT AND LOSS Expense Amt Income Amt Opening Stock Sales Purchase Closing Stock Profit 2000000 Profit on sale of Building 2000000 Total 2000000 Total 2000000 Effect on Accounting Equaiton Profit on Sale of Fixed Assets Building Purchased for 50 Lacs Building Sold for 70 Lacs Profit = 20 lacs Transaction 1 Building Purchased for 50 Lacs Effects It leads to Increase in Fixed Assets (Building) of 50 lacs Since amount paid for Purchasing, it leads to decrease in cash/bank of 50 lacs Transaction 2 Sale of Fixed Asset for 70 lacs in cash Effects Cash Received leads to increase in Asset of 70 lacs It leads to Decrease in Assets (Building) of 50 lacs Profit earned of 20 lacs also leads to increase in capital of 20 lacs Effect on Accounting Equaiton Loss on Sale of Fixed Assets Building Purchased for 50 Lacs Building Sold for 40 Lacs Loss = 10 lacs Transaction 1 Building Purchased for 50 Lacs in cash/Bank Effects It leads to Increase in Fixed Assets (Building) of 50 lacs Since amount paid for Purchasing, it leads to decrease in cash/bank of 50 lacs Transaction 2 Sale of Fixed Asset for 40 lacs in cash /Bank Effects Cash Received leads to increase in Asset of 40 lacs It leads to Decrease in Assets (Building) of 50 lacs Loss earned of 10 lacs leads to decrease in capital of 10 lacs