Glossary
Disposal of a non-current asset
Selling or scrapping an asset and working out the profit or loss on it.
What it means
The process of removing a non-current asset from the books when sold or scrapped, comparing sale proceeds with carrying amount to find a profit or loss on disposal.
Example
An asset with a carrying amount of RM5,000 sold for RM6,000 gives a RM1,000 profit on disposal.
Why it matters
The profit or loss on disposal appears in the income statement.
In practice
Disposal is handled through a disposal account. The asset's original cost is transferred in on the debit side. Its accumulated depreciation is transferred in on the credit side. The sale proceeds are credited when received. The balancing figure is the profit or loss on disposal, which is taken to the income statement.
Suppose a van costing RM15,000 has accumulated depreciation of RM11,000, giving a net book value of RM4,000. It is sold for RM5,000. The RM1,000 excess of proceeds over net book value is a profit on disposal, shown as other income. Had it sold for only RM3,000, the RM1,000 shortfall would be a loss.
Students often confuse disposal with depreciation. Depreciation spreads the cost over the asset's useful life while it is still in use. Disposal is the one-off settling-up that removes the asset from the books.
If disposal accounts are a weak point, one of our teachers can work through a few full examples with you until the layout is automatic. Book a trial class.
Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 4.2 Depreciation and disposal of non-current assets (page 14).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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