# Dispensing with the fixed assets

##### Blog / Tech News The day may come when your company or facility wants to get rid of or dispense with some of its fixed assets, either by selling them, exchanging them with other fixed assets, or getting rid of them for free.
Of course, as a result of this process of dispensing with fixed assets, your organization may achieve a profit or reap a loss, and it may not profit or lose. Whatever the situation in this case, these results must be proven in the financial and accounting books of your company.
In this article on the "Programmatic Idea" educational blog, we will explain to you the exact mathematical treatment methods for dispensing fixed assets within companies and various business organizations.
Methods of mathematical treatment of the process of dispensing fixed assets
We mentioned in the introduction that the disposal of a fixed asset is either by selling it or exchanging it with another fixed asset that may be similar or not similar to it.
Arithmetic processing methods can be divided according to the type of dispensing, whether selling or exchanging, as follows:
Sale of fixed assets
The first case that we explain dealing with when disposing of fixed assets, is the desire of the company or institution to sell the fixed asset.
In the event that your facility decides to dispose of a fixed asset it has by selling, whether before or after the end of its useful life, the sale process will result in either profit or loss for your facility, or no profit or loss. But, how do we find out? Let us clarify for you in the following two cases:
profit
Your organization makes a profit when disposing of its fixed asset if its selling price is greater than the book value (asset cost - accumulated depreciation).
loss
While your facility loses when disposing of its fixed asset, if its selling price is less than the book value.
Whatever the situation is profit or loss, an entry must be made to close the asset account and accumulated depreciation, and record the profit or loss, if any.
💡 Practical example:
Assuming that Al-Salam Company decided to dispense with some of its fixed assets by selling them to Al-Amal Company for cash, and the fixed assets were as follows:

Required :
Evidence of sale restrictions for each of the fixed assets in the previous table
Solution method:
First: Selling machinery and equipment
Book value of plant and equipment = cost of asset - accumulated depreciation  | 20,000 - 15,000 = \$5,000.
Then we subtract the selling price from the book value, so the result is zero.
So, no profit or loss was achieved for Al-Salam Company from selling its fixed assets of machinery and equipment, and therefore the entry is written as follows:

Second: selling the car
Car Book Value = Cost of the asset - Accumulated Depreciation | 10,000-6,000 = \$4,000.
Then we subtract the selling price from the book value 5000 - 4000 = 1000 dollars.
So the company made a profit from selling its fixed asset, the car, and therefore the entry is written in the financial books as follows:

Third: Sale of Furniture:
Book Value of Furniture = Cost of the asset - Accumulated Depreciation | 10,000-7,000 = \$1,000.
Then we subtract the selling price from the book value like this: 1,000 - 3,000 = -2,000 dollars.
So here the company made a loss from selling its fixed assets of furniture, and therefore the entry is written as follows:

Fixed asset swap
On the other hand, your organization may want to dispense with its fixed assets by swapping with other fixed assets.
The exchange between fixed assets here carries two basic forms, either exchanging a fixed asset for another, modern and similar one, or exchanging it for another fixed asset that is not similar to it. Of course, each of the two cases has a different arithmetic treatment, and this is what we will learn about in the next paragraph…
The first case / replacing fixed assets with other assets that are not similar to them
Replacing the fixed assets of your facility with others similar to it may result in a gain or loss for your facility, or no gain or loss, which must be recorded and recorded in the company's financial and accounting books. But, how do you mathematically process this trade-off?
This is done by comparing the net book value of the old asset to its valuation value agreed upon between the seller and the buyer, thus:
If the valuation value of the old asset is greater than its net book value, this exchange will result in a profit for the company.
If the valuation value of the old asset is less than its net book value, this exchange process will result in a loss for the company.
Example
💡 Practical example:
Assuming that the same company, Al-Salam Company, wanted to dispense with its fixed asset, which is a production machine, by exchanging it for another asset that is not similar to it, and the production machine was valued at \$2,400.
The exchange will be for furniture from Al-Amal Company, at a cost of \$5,000, and the difference will be paid in cash.
Note that the cost of the machine for Al-Salam Company was \$10,000, and its compound depreciation is \$8,000.
Required:
Mathematical treatment of the swap process and recording the swap entries in the company's accounting books.
Solution method:
First: The net book value of the asset is extracted, which equals (10000-8000) and equals \$2000
Second: The outcome of the exchange process is determined by comparing the agreed valuation price of the machine with its net book value (2000-2400), which is \$400.
According to this mathematical treatment, Al-Salam Company achieved (profit) from the process of dispensing with a fixed asset by exchanging it with another unsimilar asset from Al-Amal Company, and therefore an entry is written that proves the profit obtained as follows:
Debtor creditor statement

of those mentioned
5000
h / furniture
8000
H/ Machine depreciation complex

to mentioned
10,000 production machines
2600 fund
400 machine swap profits
The second case / replacing fixed assets with other similar assets
The situation is quite different in the mathematical treatment of dispensing fixed assets of companies by way of swapping with other fixed assets similar to them.
In such cases, the profit achieved from the exchange process is not recognized, but the amount of profit is deducted from the value of the new asset.
In the event that the company made a loss

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