When "Fixed Assets" are sold there is no change in the "Total Assets" figure. Could anybody demystify this statement with an illustration?
Answers
Unless the Fixed Assets are fully depreciated - I believe there would be a change in Total Assets when they are sold.
Total Assets includes both the Fixed Assets and the Accumulated Depreciation - so if Fixed Asset (sold) = Accumulated Depreciation for that asset then removing the sold asset has no net impact. Otherwise ... I'm not sure the context for the question.
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As long as you were carrying it on your books (net of depr.) at the same value as the cash or other assets you received, total assets would remain the same. Current assets will increase by the same amount as long term or fixed assets declines.
Won't you get cash for selling the asset? If you sold it for what you were carrying it at (net of depreciation)
Debit Cash 8,000
Debit accum Depreciation 2,000
Credit Fixed Asset (10,000)
JE balances to zero, Total Assets do not change.
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In order to cover any gains or losses, you record the loss/gain in an expense account, but you always remove the asset from the cost.
I am presuming that by "Total Assets" you are referring to the Balance Sheet presentation.
The only way, whether there is a gain, loss, or none - upon the sale, for the "Total Assets" to NOT CHANGE, is if the Fixed Asset(s) in question had zero book value - which means the FA was fully depreciated on the books.
If the FA has book value remaining, retiring it from the books will result in a net REDUCTION of Total Assets, with NBV showing up as a reduction of Retained Earnings.
The only way this does not happen is if the Fixed Asset is sold for the same amount of the remaining NBV - the result would be NO GAIN/LOSS on the sale which means no hit +/- to Retained Earnings, and the NBV shows up in Cash or a Receivable.
The other alternative is the company is not properly controlling and recording transactions that should effect the Fixed Asset accounts. I've seen many times where an asset is disposed of, likely replaced, and never "retired" from the books. This would be another reason why Total Assets didn't change, because the proper
Hope this answers the question, Randy
If you sell at book value then there will be no change to Total Assets. If you sell at a gain or a loss Total Assets will change as will the value of the equity in the company.
Total Assets will change by the net of the net book value [cost less accumulated depreciation] of the assets sold and the proceeds from the sale of those assets. No change if the proceeds equal net book value: if sold for a gain, total assets will rise, of sold for a loss, total assets will decline.
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