What is Asset Disposal?

When a company removes a long-term asset from its accounts it’s called disposal, and has impacts on gains on disposals and accumulated depreciation. Probably the most common disposal is selling the asset. This can be a highly material transaction, so knowing how it works and how’s it recorded is useful for financial professionals.

We’ll use 5 Broadgate as an example. This is a building in the city of London (pictured below), styled to look like an engine block, and initially bought by UBS for £500m. It was sold around 3 years later for £1bn. This was a huge disposal, and getting the accounts right was a prime concern for both parties! Beyond these numbers, the numbers quoted in the article are for illustration only, and don’t reflect the reality of this complex asset!

Asset disposal, also called de-recognition, is the removal of a long-term asset from a company’s financial records. If there is a difference between disposal proceeds and carrying value, a disposal gain or loss occurs.

Asset disposal is accounted for by removing the asset cost and any accumulated depreciation and impairment losses from the balance sheet, recognizing any cash receipts, and the resulting gain or loss on the income statement.

Key Learning Points

  • Asset disposals are most commonly selling the asset
  • Disposals can create a gain or loss that impacts profits
  • Disposals reduce the net book value of assets, meaning they also reduce accumulated depreciation

Explanation of the Accounting

To account the asset disposal there are three likely options:

  • Fully depreciated asset: With zero proceeds from the disposal, debit accumulated depreciation and credit the fixed asset account.
  • Gain on asset sale: Debit cash for the amount received, debit all accumulated depreciation, credit the fixed asset, and credit the gain on sale of the asset account.
  • Loss on asset sale: Debit cash for the amount received, debit all accumulated depreciation, debit the loss on the sale of an asset account, and credit the fixed asset.

Disposal of a Fully Depreciated Asset

When an asset reaches the end of its useful life and is fully depreciated, asset disposal occurs by means of a single entry in the general journal. The accumulated depreciation account is debited, and the relevant asset account is credited.

On the disposal of an asset with zero net book value and zero salvage value, no gain or loss is recognized because both the cash proceeds and carrying amounts are zero.


UBS owns a building that was originally bought for £500m with an estimated useful life of five years. After five years, the building is fully depreciated with a residual value of $0. UBS uses a straight-line depreciation policy. The building has a $0 net book value and should be scrapped. In such a case, the building’s value and the accumulated depreciation must be written off.

Required: Show the journal entries to record this asset disposal transaction by UBS.

Answer: Fully Depreciated, Scrapped, Asset Disposal Journal Entry

Description Debit Credit
Dr. Accumulated Depreciation 500
Cr. PPE (property plant and equipment) 500

In reality, this kind of transaction isn’t common. The assets would need to disappear with no further consequences for this to be the end of the entries! This is especially unlikely with physical items such as a building. The building will last more than 5 years. Also, even if the building were reduced to rubble the land would have huge value!

It’s more realistic that the above entries would happen with an intangible, which is amortizing. The legal protection Disney had over early incarnations of Mickey Mouse have lapsed as of 2024. This means that if Disney were reflecting their investment in Steamboat Willie in their books (intangible capitalization is notoriously complex, but let’s simplify and say they had), by now it would have amortized to 0. Anyone can now use this image, and the patent has no value.

Asset Disposal with a Gain

If an asset is sold for more than its carrying value, a gain on disposal occurs which will be recorded in the general journal.


We’ll again use 5 Broadgate as an example, but update the assumptions. We’ll assume UBS acquired 5 Broadgate in 2015 at a cost of £500m with an estimated useful life of 100 years and a residual value of £300m. Why so high? Land in London is expensive, and does not depreciate. After three years (2018), UBS decides to sell the building to CK Asset Holdings Ltd. for £1bn. Thus, a gain on disposal of £506m would be created.

Required: Record the asset disposal with journal entries, calculating the accumulated depreciation (straight-line method).

Workings £ m
Building cost 500
Residual value 300
= Depreciable amount 200
÷ 100 Depreciation expense 2
x 3 Accumulated depreciation 6


Description Debit Credit
Cash 1000
Accumulated Depreciation 6
PPE 500
Gain on Disposal 506

Asset Disposal with a Loss

If asset disposal proceeds are less than its carrying amount, the loss on disposal is realized, which will then be recorded in the general journal.


Staying with 5 Broadgate. In reality CK Holdings sold the building in 2022 at a good profit. Let’s imagine they had a cashflow crisis in 2020 (two years after their purchase) and felt they had to sell. 2020 was not a good year for office occupancy due to the effects of the pandemic. They may have been happy with a sale of 800m, but will have suffered a loss.

Let’s assume CK bought the building for £1bn. They updated depreciation when they bought it to 100 years from the point of their purchase (we’re assuming this to make the numbers easier to follow). They’ll sell for £800m after 2 years.

Required: Show the journal entries to record this asset disposal transaction.

Answer: Loss on Sale of Machinery Journal Entry

Workings £ m 
Building cost (remember this is the cost to CK) 1000
Residual value (assuming the land is worth the same) 300
= Depreciable amount 700
÷ 100 Depreciation expense 7
x 2 Accumulated depreciation 14


Description Debit Credit
Cash 800
Accumulated Depreciation 14
Loss on Disposal 186
PPE 1000

If you’d like to practice these three types of disposal you could download and complete the download you’ll find linked on the right hand side of the page, which contains some new example for you to practice on.


Asset disposals can create a gain or loss. For large assets this can be material, and complex. Understanding how the asset, its accumulated depreciation and the cashflow works together to create the gain or loss is a useful skill for financial professionals.

If you’d like to learn more about asset disposals, and other fundamental accounting concepts, consider looking at our accounting course The Accountant.

Additional Resources

Financial Accounting


Investment Banking Course