As part of everyday operations some assets become obsolete, outdated, break or simply don’t respond to company’s needs or strategic development plans anymore. What happens then is that the asset is either sold, destroyed, given away or taken apart for any possible spare parts. Either way it will not exist in its original state and nature in the company.

In accounting certain entries should obviously done as a result also. In reality the asset is more or less non-existing so in accounting it should also be written off from the balance sheet. The balances usually in financial statements relating to assets are: property, plant and equipment class in cost, accumulated depreciation and depreciation of the period (in the income statement). Now that the asset is decided by the management to be disposed, the asset is disposed from the balance sheet from this point onwards.

As such, the entries are as follows:

Db Accumulated depreciation (related to asset)

Db Loss from writing down assets (difference between cost value and accumulated depreciation)

Cr Property, plant and equipment class (the asset at its cost value)

Why the depreciation of the period is untouched on the income statement is related to the fact that the asset was in use in this period. At least in essence it should have been since as a general rule assets not in use (or decided to not be used in future for that matter) are written off as soon as the decision is done and effective.

With these entries the asset is written off from the balance sheet in a way that its carrying value is no longer part of company’s assets and the carrying value itself has been recognized as loss on the income statement at the time the write off was done.

With this the reality is also recorded on the financial statements.