Selling or scrapping a fixed asset

Example

A machine cost ₹5,00,000. Depreciation charged so far is ₹2,20,000, so book value is ₹2,80,000. You sell it for ₹2,50,000 + 18% GST.

1. Record the sale (F8 or F7)

Buyer A/c                      Dr  2,95,000
    To Machinery A/c                            2,50,000
    To Output CGST A/c                            22,500
    To Output SGST A/c                            22,500

2. Record the loss on sale (F7)

Book value ₹2,80,000 − sale value ₹2,50,000 = loss ₹30,000.

Loss on Sale of Asset A/c      Dr    30,000
    To Machinery A/c                              30,000

Machinery now shows nil for this asset. If you keep a separate Accumulated Depreciation ledger, transfer it to the asset account first.

GST on used assets

GST is payable on the sale of a used business asset if you claimed input credit when buying it. It is charged on the sale price. If you had not claimed credit, check the margin rules for your case.

Income tax is different

For income tax, assets are grouped in blocks (for example, all plant at 15%). A sale reduces the block value. There is usually no separate profit or loss per asset unless the block becomes nil or the whole block is sold. That is why book profit and taxable profit differ.

Scrapping

If the asset is thrown away, write off the full book value as a loss. If scrap is sold, record the scrap sale and reduce the loss.