Journal Entry for Removing Fixed Assets

Removing fixed assets is the transaction that a company uses to write off the fixed assets that are stolen or damaged before the end of their useful life.

A fixed asset is a long-term piece of property or equipment that a company owns and uses in its business operations. Fixed assets are not expected to be sold or converted into cash within the fiscal year. Instead, they are held for an extended period of time and used to generate revenue.

For accounting purposes, fixed assets are recorded on a company’s balance sheet at their historical cost less accumulated depreciation. Companies depreciate fixed assets over their expected useful life to spread out the cost. Depreciation expense is reported on a company’s income statement as part of operating expenses. Accumulated depreciation is the total depreciation expense from the beginning to the reporting date. And it is recorded on the balance sheet as the contra account of fixed assets cost.

The combination of fixed cost and accumulated depreciation is known as the net book value or carrying amount. It is the real balance that reflects on the balance sheet. The accumulated depreciation will keep increasing until it equals the cost of purchase. By that time the net book value will be zero and it is the end of the expected useful life. It will be zero if the fixed assets do not have residual value.

However, not all fixed assets are going to reach the end of useful life. Some of them may be broken or stolen before the end of their useful life. So the fixed assets have to be removed from the balance sheet and recorded as expenses immediately. We cannot depreciate the assets that do not exist anymore.

To remove the fixed assets, we have to remove both cost and the accumulated depreciation. Most of the time, the cost is higher than the accumulated depreciation. The different amounts need to record as the expense on the income statement.

Journal Entry for Removing Fixed Assets

We remove the fixed assets as they are no longer exist due to various reasons and their balance still present on the balance sheet. We have to remove both cost and accumulated depreciation to completely remove the fixed assets’ net book value.

The journal entry is debiting accumulated deprecation and credit fixed assets cost.

If the cost is higher than the accumulated depreciation, we have to record the different amounts as the fixed assets write-off.

The journal entry is debiting accumulated deprecation, fixed assets write-off, and credit fixed assets cost.

Fixed Assets write-off is the difference between cost and the accumulated depreciation.

Example

Company ABC owns a motor vehicle that cost $ 50,000 and the accumulated depreciation is $ 35,000 at the end of the year. However, the vehicle was stolen and the management decide to remove it from the report. Please prepare a journal entry to remove the fixed assets.

The vehicle is stolen from the company, so it has to be removed from the balance sheet. We have to remove both cost and the accumulated depreciation. As the cost is higher than the accumulated depreciation, there will be a write-off expense.

Write-off expense = $ 50,000 – $ 35,000 = $ 15,000

The journal entry is debiting accumulated depreciton $ 35,000, Write-off Expense $ 15,000 and credit fixed assets cost $ 50,000.