Hello, I'm a finance and accounting expert with a deep understanding of various financial transactions and their implications. I'm here to provide you with a comprehensive explanation of "Proceeds from sale of fixed assets."

Proceeds from the sale of fixed assets refer to the cash or cash equivalents received when a company sells its fixed or non-current assets. Fixed assets are long-term assets that a company uses in its operations to generate revenue and are not intended for resale. Examples of fixed assets include land, buildings, machinery, equipment, and vehicles.

The process of selling fixed assets involves several steps:


1. Identification of the asset: The company identifies the fixed asset that it intends to sell. This could be due to various reasons such as redundancy, obsolescence, or the need for cash.


2. Valuation: The company then needs to determine the fair market value of the asset. This could be done internally or through an external valuation.


3. Sale: The company sells the asset to a third party. The terms of the sale, such as the price and payment terms, are negotiated and agreed upon.


4. Receipt of proceeds: Upon completion of the sale, the company receives the proceeds from the sale. These proceeds could be in the form of cash, cash equivalents, or other financial instruments.


5. Accounting treatment: The accounting treatment for the sale of fixed assets involves recognizing the gain or loss on disposal. The gain or loss is calculated as the net disposal proceeds minus the asset's carrying value. The carrying value is the original cost of the asset less accumulated depreciation.

Now, let's discuss the options for accounting for the disposal of assets:


1. No proceeds, fully depreciated: In this scenario, if the asset has been fully depreciated and there are no proceeds from the sale, the company would debit all accumulated depreciation and credit the fixed asset account. This would effectively remove the asset from the company's balance sheet.


2. Gain on disposal: If the net disposal proceeds exceed the asset's carrying value, the company recognizes a gain on disposal. This gain is recorded as an increase in the company's income.


3. Loss on disposal: Conversely, if the net disposal proceeds are less than the asset's carrying value, the company recognizes a loss on disposal. This loss is recorded as a decrease in the company's income.

It's important to note that the gain or loss on disposal can have significant tax implications. Depending on the jurisdiction, gains may be subject to capital gains tax, while losses may be deductible for tax purposes.

In addition, the disposal of fixed assets can impact a company's financial ratios and performance metrics. For example, it can affect the company's return on assets (ROA) and return on equity (ROE) ratios, as well as its cash flow from operating activities.

In conclusion, proceeds from the sale of fixed assets are an important aspect of a company's financial management. They represent the cash inflow from the disposal of long-term assets and have implications for the company's accounting, financial reporting, and tax obligations.

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The gain or loss is calculated as the net disposal proceeds, minus the asset's carrying value. Here are the options for accounting for the disposal of assets: No proceeds, fully depreciated. Debit all accumulated depreciation and credit the fixed asset.Sep 28, 2017read more >>