AccountancyCBSE Class 11 · Depreciation, Provisions and Reserves

Disposal of an Asset Class 11: Provision for Depreciation and Asset Disposal Accounts

Updated 17 October 2026 · Fact-checked

When an asset is sold, depreciation is charged up to the date of sale, and profit or loss on sale is the difference between the sale price and the book value at that date. Under the provision method the asset stays at cost and depreciation accumulates in the Provision for Depreciation Account; on sale the asset cost and its provision are transferred to the Asset Disposal Account, which shows the sale proceeds and the profit or loss.

Cost goes on the debit side; provision and sale price go on the credit side; the balancing figure is the profit or loss sent to P&L.

Illustration drawn for QuestionBuddy.

Understand Disposal of an Asset: Provision for Depreciation and Asset Disposal Account

Two methods of recording depreciation.
1. *Charging to the asset account (reducing the asset).* Dr Depreciation A/c, Cr Asset A/c; the asset shows at book value. At year end Dr P&L, Cr Depreciation A/c.
2. *Creating a provision for depreciation.* Dr Depreciation A/c, Cr Provision for Depreciation A/c; the asset stays at original cost on the balance sheet, with provision deducted. Provision account is a credit-balance account that collects depreciation each year.

Asset disposal under the provision method.
1. Asset A/c: credit with the cost of the asset sold; the entry is Dr Asset Disposal A/c, Cr Asset A/c.
2. Provision A/c: debit with the accumulated depreciation on the asset sold; Dr Provision for Depreciation A/c, Cr Asset Disposal A/c.
3. Sale proceeds: Dr Bank, Cr Asset Disposal A/c.
4. Balancing figure of the Asset Disposal A/c is the profit (credit excess) or loss (debit excess), transferred to P&L.

Sale during the year. Charge depreciation up to the date of sale (months of use) before computing the book value. Profit/loss = sale price − book value on that date.

Check. Book value at date of sale = cost − accumulated depreciation (including the current part-year). Profit = proceeds − book value (positive means profit).

Additions. A new asset bought during the year is depreciated from its date of purchase to the year end, not for the full year.

Disposal of an Asset: Provision for Depreciation and Asset Disposal Account: key facts

Method 1: Dr Depreciation A/c, Cr Asset A/c
Asset shown at book value
Dr P&L A/c, Cr Depreciation A/c; Asset reduced directly.
Method 2: Dr Depreciation A/c, Cr Provision for Depreciation A/c
Asset stays at cost
Provision deducted on balance sheet; Accumulated depreciation visible.
Asset Disposal A/c: Dr cost of asset
Cr provision on asset
Cr sale proceeds
Balance profit or loss to P&L; Provision method.
Profit or loss on sale: Sale proceeds minus Book value at date of sale; Positive: profit.

Dr	cost of asset
Cr	provision on asset
Cr	sale proceeds
Balance	profit or loss to P&L

How to answer Disposal of an Asset: Provision for Depreciation and Asset Disposal Account questions

Disposal problems are accounts-of-the-asset problems; compute book value first, then post.

1Find the cost and the accumulated depreciation up to the date of sale (include the part year).
2Book value = cost − accumulated depreciation.
3Profit or loss = sale price − book value.
4Post: Asset A/c credit (cost), Provision A/c debit (accumulated), Asset Disposal A/c to collect cost, provision and proceeds.
5Transfer the balance of the Asset Disposal A/c to the Profit and Loss A/c.

Disposal of an Asset: Provision for Depreciation and Asset Disposal Account in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Selling an old scooter

Suppose a firm sells a delivery scooter that originally cost ₹60,000 and has ₹36,000 of accumulated depreciation, for ₹20,000.

Find the profit or loss on sale.

Try it first, then show the solutionSolution

Book value = 60,000 − 36,000 = ₹24,000.
Sale price 20,000 − book value 24,000 = −₹4,000.

Answer: Loss on sale ₹4,000.

Memory hook: Sell below book value, book a loss.

Tricks to remember Disposal of an Asset: Provision for Depreciation and Asset Disposal Account

Short memory aids. Say each one aloud once, then use it on a question the same day.

Book value first
Cost less accumulated depreciation, then compare with the price.
Use it when: Profit or loss on sale.
Disposal collects three things
Cost on the debit, provision and proceeds on the credit.
Use it when: Provision method.

Disposal of an Asset: Provision for Depreciation and Asset Disposal Account: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Which account? · 1 mark · MCQBoard level

Profit or loss on the sale of an asset is first calculated in the:
(a) Asset Disposal Account
(b) Cash Account
(c) Capital Account
(d) Sales Account

Try it first, then show the solutionSolution

A special account collects cost, provision and proceeds.

Answer: (a) Asset Disposal Account

Example 2: Two methods · 3 marks · Short answerBoard level

Pass the journal entries for annual depreciation of ₹40,000 on a machine (i) when depreciation is charged directly to the asset account; (ii) when a provision for depreciation is created. Also give the entry that transfers the depreciation to the profit and loss account. (3 marks)

Try it first, then show the solutionSolution

(i) Depreciation A/c Dr 40,000; To Machinery A/c 40,000.
(ii) Depreciation A/c Dr 40,000; To Provision for Depreciation A/c 40,000.
Transfer: Profit and Loss A/c Dr 40,000; To Depreciation A/c 40,000.

Answer: Depreciation Dr 40,000, Cr Machinery or Cr Provision; P&L Dr 40,000, Cr Depreciation 40,000.

Example 3: Disposal on the provision method · 6 marks · Long answerHarder board level

A machine costing ₹4,00,000 was bought on 1 April 2022. Depreciation at 10% of cost per year by SLM is credited to the Provision for Depreciation Account. The machine was sold on 31 March 2025 for ₹2,60,000. Find the book value, the profit or loss, and prepare the Asset Disposal Account. (6 marks)

Try it first, then show the solutionSolution

Annual depreciation = ₹40,000; for three years = ₹1,20,000. Book value = 4,00,000 − 1,20,000 = ₹2,80,000.
Sale price 2,60,000 − 2,80,000 = loss ₹20,000.
Asset Disposal A/c: Dr Machinery 4,00,000. Cr Provision for Depreciation 1,20,000; Cr Bank 2,60,000; Cr Profit and Loss (loss) 20,000. Both sides ₹4,00,000.

Answer: Book value ₹2,80,000; loss ₹20,000; disposal account totals ₹4,00,000.

Example 4: Sale part-way through the year · 5 marks · Short answerHarder board level

A machine bought on 1 April 2023 for ₹3,00,000 is depreciated at 10% WDV (year ends 31 March). It was sold on 30 September 2025 for ₹2,00,000. Find the depreciation for each year until the sale and the profit or loss. (5 marks)

Try it first, then show the solutionSolution

2023-24: 10% of 3,00,000 = ₹30,000; BV 2,70,000.
2024-25: 10% of 2,70,000 = ₹27,000; BV 2,43,000.
2025-26 (6 months to 30 September): 2,43,000 × 10% × 6/12 = ₹12,150; BV 2,30,850.
Sale 2,00,000 − 2,30,850 = loss ₹30,850.

Answer: Depreciation 30,000; 27,000; 12,150. Loss on sale ₹30,850.

Example 5: Sale, gain and balance sheet · 4 marks · Short answerHOTS / competency

A firm sells a machine for more than its book value. State where the profit on sale is shown, and explain what happens to the provision for depreciation on the machine and to the balance sheet. (4 marks)

Try it first, then show the solutionSolution

The profit is credited to the Profit and Loss Account (gain on sale of an asset).
The provision for the sold machine is transferred to the Asset Disposal Account (debited in the Provision A/c), so it no longer reduces other assets.
The machine disappears from the balance sheet at cost, and the balance of the provision falls by the same accumulated depreciation.
The net effect on assets: cost removed, provision removed, cash or bank increased by the sale price.

Answer: Profit to P&L; provision and cost both removed; cash or bank added.

Where students lose marks in Disposal of an Asset: Provision for Depreciation and Asset Disposal Account

The slips examiners see most often, and what to write instead.

Mistake: Taking cost, not book value, for the profit
Forgetting accumulated depreciation.
Wrong working
Loss = 4,00,000 − 2,60,000 = 1,40,000.
Right working
Loss = Book value 2,80,000 − 2,60,000 = 20,000.
Do this: Profit or loss is against book value.
Usually costs: 1 mark
Mistake: Not charging depreciation up to the date of sale
Stopping at the last year end.
Wrong working
Book value = 2,43,000.
Right working
Add 6 months' depreciation: book value 2,30,850.
Do this: Charge depreciation for the part year.
Usually costs: 1 mark
Mistake: Debiting the provision and the asset in the same side
Not understanding the disposal account.
Wrong working
Asset disposal Dr provision.
Right working
Asset Disposal Dr cost; Cr provision; Cr bank.
Do this: Provision is credited in the disposal account.
Usually costs: 1 mark

Exam tips

Show book value before any posting.
Round to whole rupees only at the end.
Complete the Asset Disposal Account so both sides agree.
Say "loss transferred to Profit and Loss Account" explicitly.

Practice questions on Disposal of an Asset: Provision for Depreciation and Asset Disposal Account

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
Under the provision method, the asset appears in the balance sheet at:
(a) book value
(b) cost less provision shown separately as a deduction
(c) sale price
(d) scrap value
Hint
Cost remains in the ledger.
Answer
(b) cost less provision shown separately as a deduction
Q2 · 3 marks · Short answerHarder board level
A machine cost ₹2,50,000 and its accumulated depreciation up to the date of sale was ₹1,00,000. It was sold for ₹1,70,000. Find the profit or loss. Show the entry that closes the Asset Disposal Account. (3 marks)
Hint
Book value first.
Answer
Book value = 2,50,000 − 1,00,000 = ₹1,50,000. Profit = 1,70,000 − 1,50,000 = ₹20,000. Entry: Asset Disposal A/c Dr 20,000; To Profit and Loss A/c 20,000.
Q3 · 5 marks · Short answerHarder board level
A van bought on 1 July 2022 for ₹6,00,000 is depreciated at 10% on cost (SLM), year ending 31 March. It was sold on 31 December 2024 for ₹4,50,000. Find the depreciation in each year, the book value on the date of sale and the profit or loss. (5 marks)
Hint
Count months in each year.
Answer
2022-23 (9 months) = 6,00,000 × 10% × 9/12 = ₹45,000. 2023-24 = ₹60,000. 2024-25 (9 months to 31 Dec) = ₹45,000. Accumulated = 1,50,000; book value = 4,50,000. Sale price 4,50,000: no profit and no loss.
Q4 · 1 mark · Assertion-reasonHarder board level
Assertion (A): The Provision for Depreciation Account has a credit balance.
Reason (R): The provision accumulates depreciation charged each year.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Accumulating.
Answer
(a) Both A and R are true, and R is the correct explanation of A.
Q5 · 4 marks · Short answerHOTS / competency
A firm replaces an old machine. The old machine (cost ₹5,00,000, accumulated depreciation ₹3,00,000) is sold for ₹1,50,000, and a new machine costing ₹6,00,000 is bought on the same day, the payment for the new machine being the cash balance after the sale proceeds are received. Find the profit or loss on sale and the net cash paid for the new machine. (4 marks)
Hint
Net cash = cost less sale proceeds.
Answer
Book value = 5,00,000 − 3,00,000 = 2,00,000. Loss = 2,00,000 − 1,50,000 = ₹50,000. Net cash paid = 6,00,000 − 1,50,000 = ₹4,50,000.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Book value formula?Show answer
Cost − accumulated depreciation.
2.Profit on sale?Show answer
Sale price − book value, if positive.
3.Where is the loss on sale transferred?Show answer
Profit and Loss Account.
4.What does the provision account hold?Show answer
Accumulated depreciation.
5.Is depreciation charged up to the date of sale?Show answer
Yes.

Disposal of an Asset: Provision for Depreciation and Asset Disposal Account: frequently asked questions

Why a provision account?

So that the asset stays visible at original cost with accumulated depreciation shown separately.

What is the Asset Disposal Account for?

To work out profit or loss on the sale of an asset.

Does depreciation stop on sale?

Yes; it is charged only up to the date of sale.