Question

In case of liquidation of fixed assets that are still of use value and cash collection, the following accounts shall be recorded: A. Decrease in cost and increase in depreciation
B. Increase costs, decrease income; C. Increase income, reduce costs.
D. Increase costs, increase income

Answer 1

When there is the liquidation of fixed assets that are of use-value with cash collection, the accounts recorded are as follows C. Increase income, reduce costs.

• The income increases because of the cash collection from the liquidation. The fixed assets' accounts are credited (reduced) with the costs.

• Then debit the accumulated depreciation account with the amount of its balance. A new account called the "Sale of Fixed Assets" account opens.

• The "Sale of Fixed Assets" account is debited with the costs and credited with the accumulated depreciation and the cash proceeds from the disposal.

Thus, the difference is an increase in income (profit) if the credit side exceeds the debit side of the "Sale of Fixed Assets" account.

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