Disposal of a non-current asset

The disposal account in three steps

(1) Transfer the asset's cost to the disposal account: Dr Disposal / Cr Asset. (2) Transfer the accumulated depreciation on that asset: Dr Provision for depreciation / Cr Disposal. (3) Record the proceeds: Dr Bank (or Dr the new asset, for a part-exchange) / Cr Disposal. Whatever balance is left is the profit or loss.

Reading the balance

A credit balance on disposal is a profit — you received more than net book value. A debit balance is a loss. The balance goes to the income statement, and it is really a correction of past depreciation estimates, not a trading gain.

Part-exchange

The trade-in allowance is the proceeds. If a new machine costs $\$50\,000$ and the dealer allows $\$9\,000$ for the old one, then $\$9\,000$ is credited to disposal and the new asset is recorded at the full $\$50\,000$ — not at the $\$41\,000$ actually paid.

Depreciation in the year of disposal

The question always states the policy: a full year in the year of purchase and none in the year of sale, or a monthly apportionment. Read it before calculating — this single sentence changes every number.