Journal entry for sale of plant assets

Introduction

In accounting, when we make the sale of plant assets, we need to remove such plant assets from the balance sheet as well as record the gain or loss as a result of the sale to the income statement. In this case, we need to make the journal entry for sale of plant assets in order to properly account for the sale transaction.

Plant assets are physical non-current assets that we acquire to use in the business operation. These plant assets are also known as property, plant, and equipment which is usually referred to in short as “PPE” in accounting terms.

When we sell the plant asset, there is usually a gain or a loss from the sale as the estimated salvage value is usually not 100% accurate at the time of registration. The gain or loss on the sale of plant assets can be determined by comparing the proceeds that we receive from the sale to the net book value of the assets.

Journal entry for sale of plant assets

Gain on sale of plant assets

We have a gain on the sale of the plant assets when the sale proceeds of the assets are higher than the net book value recorded on the balance sheet at the date of the sale.

In this case, we can make the journal entry for gain on the sale of plant assets by debiting the cash account and the accumulated depreciation account and crediting the plant asset account and the gain on sale of plant assets account.

This journal entry will remove the plant asset and its associated accumulated depreciation from the balance sheet. At the same time, the amount of the gain on sale of plant assets will be recorded in the income statement as the other revenues.

Loss on sale of plant assets

On the other hand, we have a loss on the sale of the plant assets when the net book value of the assets is higher than the sale proceeds.

In this case, we can make the journal entry for loss on sale of plant asset by debiting the difference between sale proceeds and the net book value of the asset to the loss on sale of plant assets account as below:

In this journal entry, the amount of the loss on sale of plant assets will be charged to the income statement as an expense.

Sale of plant asset example

For example, on January 1, we sell office equipment which is a type of plant asset that we recorded on the balance sheet for $1,200. We purchased this office equipment four years ago for $5,000.

At the time of sale, the equipment has a $4,000 accumulated depreciation recorded on the balance sheet.

In this case, we can determine the net book value of the equipment on the date of the sale to be $1,000 ($5,000 – $4,000). Hence, we have a $200 gain on the sale of the equipment ($1,200 – $1,000).

In this case, we can make the journal entry for the $200 gain on the sale of the equipment which is a plant asset as below:

This journal entry will remove the $5,000 equipment as well as its $4,000 accumulated depreciation from the balance sheet as of January 1. At the same time, the $200 gain on the sale of plant assets will be recorded in the income statement as other revenues.

Example 2:

For another example, assuming that we sell the office equipment in the example above for only $800.

In this case, there will be a loss of $200 instead as the sale price would be $800 which is $200 below the $1,000 net book value of the equipment.

If that is the case, we can make the journal entry for the $200 loss on the sale of plant assets as below:

In this journal entry, the $200 loss on the sale of plant assets will be recorded in the income statement as other expenses.