Question

Give journal entries for:
Transfer of balance in asset account in case of loss.

• A. Profit and Loss A/c Dr.
  To Asset A/c
• B. Asset A/c Dr.
  To Profit and Loss A/c
• C. Bank A/c Dr.
  To Asset A/c
• D. None of the above

Answer 1

The correct option is A Profit and Loss A/c Dr.

To Asset A/c
If the asset is disposed off, the profit or loss generated on account of sale has to be transferred to the respective asset a/c. If the sale proceed is more than the written down value of the asset, there will be profit and if the sale proceed is lower than the written down value, there will be loss on sale of asset.

For example , WDV of the machine is Rs.5000 which is sold for Rs.4500. There is a loss of Rs.500 on sale of asset. Following entry will be passed in the books of account for loss:

Profit & Loss A/c Dr. 500

Bank A/c Dr. 4500

To Asset A/c 5000