Accounting · Depreciation and Amortisation

Depreciation on Additions, Sales and Disposal of Assets

Updated 1 October 2026

When an asset is bought or sold during the year, charge depreciation only for the months you owned it (pro rata). On sale, compare the sale price with book value at the date of sale. Sale price above book value is a profit; below it is a loss. Record it in the asset account or provision account.

Understand Depreciation on Additions, Sales and Disposal of Assets

Depreciation is charged for the period an asset is used. If you buy a machine on 1 October and the year ends on 31 March, you used it for six months. So you charge only six months of depreciation. The same logic applies to a sale: charge depreciation up to the date of sale, not for the full year.

Once you have depreciation up to the date of sale, you can find the book value (also called written down value). Book value = cost minus total depreciation charged till the date of sale. Profit or loss on sale is the difference between the sale price and this book value.

There are two ways to show depreciation in the books. In the asset account method, depreciation is credited directly to the asset account, so the asset appears at book value. In the provision for depreciation method, the asset stays at original cost and depreciation builds up on the credit side of a separate Provision for Depreciation (Accumulated Depreciation) account.

In the provision method, when an asset is sold, you must remove its cost from the asset account and its accumulated depreciation from the provision account. The balance of the two is the book value. Students often miss this transfer. The sale itself is recorded through an Asset Disposal Account, which collects the cost, the sale proceeds, and the depreciation, and shows profit or loss as the balancing figure.

In exam questions, the rate, the method (straight line or written down value), the date of purchase and the date of sale decide everything. Read these first. Unless told otherwise, assume the financial year runs from 1 April to 31 March.

Key rules to remember

Part-year depreciation (straight line): Depreciation = Cost × Rate % × (Months used ÷ 12); Use months from the date of purchase to the year end. Use the date of sale as the end point for sold assets.
Part-year depreciation (written down value): Depreciation = Opening book value × Rate % × (Months used ÷ 12); For an addition, use its cost as the base in its first year.
Book value at date of sale: Book value = Cost − Accumulated depreciation up to date of sale; Accumulated depreciation includes the part-year charge for the year of sale.
Profit or loss on sale: Profit/(Loss) = Sale proceeds − Book value; Positive means profit, negative means loss. Profit goes to credit of Profit and Loss Account, loss to debit.
Asset account method entry: Depreciation: Dr Depreciation A/c, Cr Asset A/c; The asset is shown at book value in the Balance Sheet. A sold asset leaves at book value only after depreciation up to the date of sale is posted to the asset account.
Provision method entry: Depreciation: Dr Depreciation A/c, Cr Provision for Depreciation A/c; The asset is shown at cost; the provision is deducted from it.
Disposal entries (provision method): Dr Asset Disposal A/c, Cr Asset A/c (cost); Dr Provision for Depreciation A/c, Cr Asset Disposal A/c (accumulated depreciation); Dr Bank A/c, Cr Asset Disposal A/c (sale price); The balancing figure in the Asset Disposal Account is profit or loss on sale.

How to solve Depreciation on Additions, Sales and Disposal of Assets questions

Use this order for any question on additions, sales and disposal. It keeps the working clean and earns step marks.

1Read the question and note the method (SLM or WDV), the rate, the accounting year-end and the method of showing depreciation (asset account or provision account).
2List every asset with its date of purchase or sale. Mark which ones are opening, added during the year, or sold during the year.
3Count the months of use in the year for each asset. Count a part of a month as a full month only if the question says so.
4Calculate depreciation for each asset separately. For a sold asset, find depreciation for earlier years and the part-year up to the sale date.
5For a sold asset, find book value at the date of sale and compare it with the sale price to get profit or loss.
6Prepare the ledger account: asset account, provision for depreciation account or asset disposal account as asked. Show opening balance, additions, sale and depreciation in the correct sides.
7Balance the account. The closing figure is the Balance Sheet value. Show profit or loss on sale and the depreciation charge for the year clearly in the Profit and Loss Account.
8 Show your working notes below the account. Check that the account balances before writing the answer.

Quickest way: Three-column working note

When to use it: Use when the question has two or more assets with different dates, and you are short of time.

Draw a small table with columns: Asset, Cost, Months, Depreciation. Fill one row per asset.
For a sold asset, add one more row for the earlier years' depreciation, then add them for total accumulated depreciation.
Subtract accumulated depreciation from cost to get book value, then compare with sale price in one line.
Post the totals to the ledger account. Do not recalculate inside the account.
Check: opening + additions − sale − depreciation should equal the closing balance (asset account method).

Common mistakes in Depreciation on Additions, Sales and Disposal of Assets

Charging a full year of depreciation on an asset bought during the year.
Students apply the rate directly to cost and forget the date.
Fix: Always multiply by months used ÷ 12 unless the question tells you to charge a full year.
Forgetting depreciation up to the date of sale before calculating profit or loss.
Students use the opening book value as the book value at sale.
Fix: Add the part-year depreciation from 1 April to the sale date, then find the book value.
Showing the wrong sign for profit or loss on sale.
The comparison is mixed up between sale price and book value.
Fix: Remember: sale price above book value is a profit; below is a loss. Write the two numbers side by side before deciding.
Leaving accumulated depreciation of the sold asset in the provision account.
Students remove only the cost from the asset account.
Fix: Transfer the sold asset's accumulated depreciation from the provision account to the Asset Disposal Account.
Using the opening book value for an asset added during the year under WDV.
Students apply the rate to the whole machinery balance.
Fix: Compute depreciation for old and new assets separately, using cost for the new asset and the months of use.
Treating sale price as the value to deduct from the asset account instead of cost or book value.
Students confuse what leaves the asset account.
Fix: In the asset account method, the sold asset leaves at book value after depreciation up to the date of sale is posted to the asset account; in the provision method it leaves at cost.

Worked examples

Example 1

On 1 April 2023, a firm had Machinery of ₹5,00,000. On 1 October 2023, it bought new machinery for ₹2,00,000. Depreciation is charged at 10% per annum on the straight line method on cost. Accounts close on 31 March 2024. Show the Machinery Account (asset account method).

Show the solution

Depreciation on old machinery = 5,00,000 × 10% = ₹50,000 for a full year.
Depreciation on new machinery = 2,00,000 × 10% × 6 ÷ 12 = ₹10,000.
Total depreciation = 50,000 + 10,000 = ₹60,000.
Machinery Account debit side: Balance b/d ₹5,00,000 and Bank (purchase) ₹2,00,000, total ₹7,00,000.
Credit side: Depreciation ₹60,000 and Balance c/d ₹6,40,000, total ₹7,00,000.

Answer: Depreciation for the year is ₹60,000 and the closing balance of Machinery is ₹6,40,000.

Example 2

On 1 April 2023, a firm's Machinery Account showed cost ₹6,00,000 and Provision for Depreciation ₹1,80,000. On 1 October 2023, a machine that cost ₹2,00,000 on 1 April 2021 was sold for ₹1,30,000. Depreciation is 10% per annum straight line on cost, charged up to the date of sale. Find the profit or loss on sale and the accumulated depreciation on the sold machine.

Show the solution

The total cost of ₹6,00,000 and total provision of ₹1,80,000 are not needed here. Only the sold machine's own cost, rate and dates matter.
Depreciation on the sold machine for 2021-22 = 2,00,000 × 10% = ₹20,000.
Depreciation for 2022-23 = ₹20,000.
Depreciation for 1 April 2023 to 1 October 2023 = 2,00,000 × 10% × 6 ÷ 12 = ₹10,000.
Accumulated depreciation on the sold machine = 20,000 + 20,000 + 10,000 = ₹50,000.
Book value at sale = 2,00,000 − 50,000 = ₹1,50,000.
Sale price = ₹1,30,000. Since sale price is less than book value, there is a loss.
Loss on sale = 1,50,000 − 1,30,000 = ₹20,000.
Asset Disposal Account: Debit side: To Machinery A/c (cost) ₹2,00,000. Credit side: By Provision for Depreciation A/c ₹50,000, By Bank A/c ₹1,30,000, By Profit and Loss A/c (transfer of loss) ₹20,000. Both sides total ₹2,00,000.

Answer: Accumulated depreciation on the sold machine is ₹50,000, book value is ₹1,50,000, and the loss on sale is ₹20,000.

Exam tips

Write the months of use for each asset in a working note. Examiners give separate marks for it.
Always state the assumption about the year-end (31 March) and the method used, even if the question leaves it out.
Show the Asset Disposal Account in full when the question uses the provision method. Profit or loss is the balancing figure.
If the question says depreciation is charged for a full year on additions and none in the year of sale, follow that instruction over the pro rata rule.
Check that the asset account balances before moving on. An unbalanced account often signals a missed depreciation or sale entry.

Practice questions from Depreciation and Amortisation

Depreciation on Additions, Sales and Disposal of Assets: frequently asked questions

How do I calculate depreciation on an asset bought during the year?

Multiply the cost by the depreciation rate and then by months used ÷ 12. For example, a ₹1,20,000 asset at 10% bought four months before year end gets 1,20,000 × 10% × 4 ÷ 12 = ₹4,000.

How do I find profit or loss on sale of an asset?

First find the book value at the date of sale: cost minus accumulated depreciation, including the part-year charge. Then subtract book value from the sale price. A positive result is a profit and a negative result is a loss.

What is the difference between the asset account method and the provision method?

In the asset account method, depreciation is credited to the asset account, so the asset shows at book value. In the provision method, the asset stays at cost and depreciation accumulates in a separate provision account that is deducted in the Balance Sheet.

Where does profit or loss on sale go?

It is transferred to the Profit and Loss Account. A profit is credited and a loss is debited. It is not shown in the Trading Account.