Description of the problem:
How do you account for the salvage value of end-of-life equipment you receive. The cash.
Urgent
Answer:
The following accounting entries are generally made when cleaning up a fixed asset at obsolescence:
1. Transferring an obsolete fixed asset to clean up:
Borrowing: Fixed Asset Cleanup (if you have depreciated the asset, the result of the calculation here should be the net salvage value)
Accumulated Depreciation
Crediting: Fixed Asset
2.
2. The proceeds from the sale of scrap fixed assets:
Borrow: Cash
Credit: Fixed Asset Cleanup
3. Payment of cleanup costs
Borrow: Fixed Asset Cleanup
Credit: Cash
4. If the carryover of scrap fixed assets is a net loss (meaning the difference between the proceeds of the scrap and the cost of cleanup)
Debit: Non-operating Expenses - Net Loss on Fixed Assets
Credit: Liquidation of Fixed Assets
5. If the net loss (meaning the difference between the residual income and the liquidation cost)
Debit: Liquidation of Fixed Assets
Credit: Non-operating Income - Net Gain on Fixed Assets
Debit: Non-operating Income - Net Gain on Fixed Assets
Credit: Cash Credit: Non-Operating Income - Net Gain on Disposal of Fixed Assets
Remarks: If you are selling real estate, you need to accrue and pay business tax (tax rate of 5%) Business Tax Payable = Actual Transaction Price x 5%
Please refer to the actual notification of your local tax department for the tax rate.
Journal entries:
Borrow: Fixed Assets Cleanup
Credit: Taxes Payable - Business Tax Payable