In this blog, I will try explaining the Disposal process with accounting entries in Microsoft Dynamics 365 finance and operations.

Disposal is a process of removing fixed asset from the books by selling it to customer (Disposal-Sale) or scrapping (Disposal-Scrap) it without getting any value. Now both Disposal-Sale/Disposal-Scrap are two types of transactions just to identify that asset has been sold or scrapped but financially both has same impact.

Now let us understand both transactions with example:

Example-1: We have one asset (60 Months life) worth 5000 which was acquire on 1st Jan 2021 and has been depreciated till March 31st, 2021 with net book value at 4750.01.

Now, we want to sell this asset at 4500 which means we are making a loss of “250.01”.

Example-2: We have one asset (60 Months life) worth 4000 which was acquire on 1st Jan 2021 and has been depreciated till March 31st, 2021 with net book value at 3799.99.

Now, we want to scrap this asset at no value which means we are making a loss of “3799.99”.

Now we can use two features for this type of transactions:

  1. Free text invoice – Sale
  2. Fixed asset journal-Scrap/Sale (Both)-Depends on the requirement when we do not have any customer for sale.

Expected accounting impact on Disposal.

  1. Fixed asset acquisition value (in our case 5000 & 4000) should be reversed.
  2. Fixed asset Accumulated depreciation/Depreciation adjustments booked in this year or previous year should be reversed.
  3. Any Writeup/Write down also should be reversed.
  4. Based on Net book value profit/Loss should be calculated

Pre-Requisites:  Setup Disposal- Sale or Disposal-Scrap posting profile.

Note: As mentioned both has same impact it is just different transaction type, so I will demonstrate this with “Disposal-Sale” type of transaction, same can be done using Disposal-Scrap.

Read here complete blog on fixed asset posting profile:

Fixed asset Posting Profile

Now run both the examples:

Example-1:

Step-1: Create Free text invoice.

Accounts Receivables > Invoices > Free Text Invoice > New > Select Customer> Date etc…

Step-2: Select Fixed asset number in Line details.

Step-3: Post Free text invoice

Step-4: View Sold Asset and Accounting Entries

Note: Net off all the entries in account “801100” will be net profit/Loss

Example-2:

Step-1: Create Fixed asset Journal and Post

Fixed asset > Fixed asset Journal > New > Lines > Select date of scrap, Transaction type Disposal-Sale, Asset number etc…

Step-2: View Scrapped asset and Accounting impact

That’s it for this blog, hope this will help you in understanding the compete disposal process.