Sale of asset accounting treatment

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madhav (ca) 16 March 2021

suppose a company's original value of the building is Rs 50 lacs, wdv is Rs 35 lacs and it sells this building for Rs 60 lacs.

the difference between wdv and original value of Rs 15 lacs (rs 50 lacs minus 35 lacs) will be credited to the profit and loss account obviously.

can i take the excess amount of Rs 10 lacs over and above original value to the balance sheet as capital reserve instead of profit and loss account. pl explain the treatment as per the accounting standard and not from income tax point of view.. thanks n regards

thanks n regards

Sourav (Student) 16 March 2021

Original amount is 50 lacs
WDV is 35 lacs
means depreciation is (50-35)= 15 lacs should be debited to profit and loss account

Sale value is 60 lacs
means Profit should be (60-35) = 25 lacs should be credited to profit and loss account.

Profit on disposal of fixed asset is a indirect income and is therefore recognised in profit and loss account which is a Free Reserve. It is not permanently invested in business, but can be use by firm for various purpose(including for the payment of dividend)