Introduction Objectives State the 3 reasons for disposal Recognise and calculate the gainloss on disposal of fixed assets Identify the two methods of recording the disposal of fixed assets Record disposal of fixed asset ID: 268679
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Slide1
Disposal of Fixed Assets ISlide2
Introduction
Objectives:
State the 3 reasons for disposal
Recognise and calculate the gain/loss on disposal of fixed assets
Identify the two methods of recording the disposal of fixed assets
Record disposal of fixed asset
Target group: Secondary 3 express
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Contents
Section A: Reasons for Disposal
Section C: Recording of Disposal of
Fixed Assets
Section B: Gain/Loss on Disposal
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K-W-L
(Worksheet):
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Section A – Reasons for disposal
^&*?#$
MR BUBU
Fruit Business
WHEN DO YOU DISPOSE OF FIXED ASSETS?
sec A
sec B
sec C
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SCENARIO
HELP MR BUBU TO DECIDE ON WHAT HE SHOULD DO WITH HIS COMPUTER.
GIVE REASONS FOR
YOUR DECISION.
486 DX
Model
Section A – Reasons for disposal
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sec A
sec B
sec CSlide7
SCENARIO
HELP MR BUBU TO DECIDE ON WHAT HE SHOULD DO WITH HIS DELIVERYVAN. GIVE REASONS FOR YOUR ACTION.
Section A – Reasons for disposal
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sec A
sec B
sec CSlide8
Main reasons for the disposal of fixed
asset in business are:
Section A – Reasons for disposal
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Frequent breakdowns
High costs of repairs and maintenance
Obsolescence
sec A
sec B
sec CSlide9
Section B –
Profit/Loss on DisposalSelling Price = Amount received for the disposal
When fixed assets are disposed of or traded in for new assets, the selling prices are generally different from the book values of the assets concerned.
Net Book = Price at – Total accumulated
Value cost depreciation
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sec A
sec B
sec CSlide10
Section B –
Profit/Loss on DisposalWhen fixed assets are disposed of or traded in for new assets, the selling prices are generally different from the book values of the assets concerned.
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PROFIT/(LOSS) ON DISPOSAL =
SELLING PRICE – NET BOOK VALUE
sec A
sec B
sec CSlide11
SELLING PRICE
OF DELIVERY VANProfit on Disposal of Asset occurs
when:
NET BOOK VALUE
OF DELIVERY VAN
>
>
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Section B –
Profit/Loss on Disposal
sec A
sec B
sec CSlide12
Loss on Disposal
of Asset occurs when:SELLING PRICE
OF DELIVERY VAN
NET BOOK VALUE
OF DELIVERY VAN
<
<
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Section B –
Profit/Loss on Disposal
sec A
sec B
sec CSlide13
EXAMPLE 1:
Mr. BUBU bought a delivery van on 1 January 2001 for$20,000. BUBU decides to depreciate the delivery vanat the rate of 20% per annum. On 31 December 2002due to the
high cost of repairs and maintenance
, BUBU
sold it for
$15,000
to MUMU.What is the selling price & net book value?Find the gain/loss on disposal…
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Section B –
Profit/Loss on Disposal
sec A
sec B
sec CSlide14
Time Line
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I Jan
2001
IN
OUT
$20,000
$15,000
31 Dec
2001
sec A
sec B
sec C
31 Dec
2002
Depreciation 20% per annum
$4,000
$4,000
Cost Price
Selling PriceSlide15
Cost Price x Rate x Usage
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Section B –
Profit/Loss on Disposal
Selling Price = Amount received for the disposal
=
$15,000
Gain/loss on disposal = SP – NBV
=
$ 3,000
Net Book Value = Price at - Total accumulated
cost depreciation
$20,000x20%x2
= $20,000 - $8,000
=
$12,000
Provision for depreciation
sec A
sec B
sec CSlide16
What will happen if BUBU changes the rate of
depreciation to:10% per annum?50% per annum?
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Section B –
Profit/Loss on Disposal
Cost Price - Provision
COST PRICE
USAGE
RATE
NBV
GAIN/LOSS
$20,000
2 years
20%
$12,000
Provision for
depreciation
$8,000
$3,000
SP - NBV
Cost Price x Rate x Usage
SP
$15,000
$20,000x20%x2
$20,000-$8,000
sec A
sec B
sec CSlide17
COST PRICE
USAGE
RATE
NBV
GAIN/(LOSS)
$20,000
2 years
20%
$20,000
2 years
50%
0
$15,000
$20,000
2 years
10%
$16,000
SP
$15,000
$15,000
$15,000
$3,000
$12,000
($1,000)
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Section B –
Profit/Loss on Disposal
Cost price – Provision for depreciation
Provision for
depreciation
$8,000
$10,000
$4,000
SP - NBV
Cost Price x Rate x Usage
sec Asec Bsec CSlide18
Profit from Disposal
of Asset indicates that thedepreciation expense for the asset has beenoverestimated over its useful lifeLoss from Disposal
of Asset indicates that the
depreciation expense
for the asset has been
underestimated over its useful life
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Section B –
Profit/Loss on Disposal
sec A
sec B
sec CSlide19
Section C – Recording
Two methods of recording disposal of fixed assets: (a) A separate disposal of fixed asset
account
(b)
No disposal of fixed asset account
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sec A
sec B
sec CSlide20
EXAMPLE 1:
Mr. BUBU bought a delivery van on 1 January 2001 for$20,000. BUBU decides to depreciate the delivery vanat the rate of 20% per annum. On 31 December 2002due to the
high cost of repairs and maintenance
, BUBU
sold it for
$15,000
to MUMU.Section C – WITH DISPOSAL A/C
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sec A
sec B
sec C
WorkingsSlide21
Section C –
WITH DISPOSAL A/CPARTICULARS
JOURNAL ENTRIES:
General Journal
DATE
DEBIT
CREDIT
2002
$
$
STEP 1
4,000
4,000
Depreciation of vehicle
Provision for depreciation of vehicle
(Being depreciation of delivery van for the second year)
Dec 31
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For this second year only
$20,000 x 20%
sec A
sec B
sec C
Workings
DepreciationSlide22
Section C –
WITH DISPOSAL A/CPARTICULARS
General Journal
DATE
DEBIT
CREDIT
$
$
STEP 2a
2002
20,000
20,000
Disposal of vehicle
Vehicle
(Being transfer of delivery van sold to Disposal Account)
Dec 31
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At Cost Price
sec A
sec B
sec C
Workings
Transfer A
JOURNAL ENTRIES:Slide23
Section C –
WITH DISPOSAL A/C
General Journal
DATE
DEBIT
CREDIT
$
$
STEP 2b
PARTICULARS
2002
8,000
8,000
Provision for depreciation of vehicle
Disposal of vehicle
(Being transfer of accumulated depreciation of delivery van to Disposal Account)
Dec 31
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sec A
sec B
sec C
?
?
Calculation?
Workings
Transfer B
JOURNAL ENTRIES:Slide24
Section C –
WITH DISPOSAL A/C
General Journal
DATE
DEBIT
CREDIT
$
$
STEP 3
PARTICULARS
2002
Bank
Disposal of vehicle
(Being cash received from disposal of delivery van)
Dec 31
15,000
15,000
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sec A
sec B
sec C
Workings
What you receive?
JOURNAL ENTRIES:Slide25
Section C –
WITH DISPOSAL A/C
General Journal
DATE
DEBIT
CREDIT
$
$
STEP 4
PARTICULARS
2002
3,000
3,000
Disposal of vehicle
Profit & Loss
(Being delivery van which has a net book value of $12,000 and selling price at $15,000)
Dec 31
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sec A
sec B
sec C
Workings
Profit/Loss?
JOURNAL ENTRIES:Slide26
Section C –
WITH DISPOSAL A/C
General Journal
DATE
DEBIT
CREDIT
$
$
STEP 5a
PARTICULARS
2002
4,000
4,000
Profit & Loss Account
Depreciation of vehicle
(Being closing of depreciation to Profit and Loss Account)
Dec 31
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sec A
sec B
sec C
Workings
Closing A
JOURNAL ENTRIES:Slide27
Section C –
WITH DISPOSAL A/CLEDGER ENTRIES:
Vehicle Account
$
$
sec A
sec B
sec C
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Dec 31
20,000
Disposal of vehicle
2002
At Cost Price
2001
Bank
20,000
Jan 1
2001
2002
Balance b/d
20,000
Jan 1
Dec 31
20,000
Balance c/d
Any purchase or sales of fixed assets are recorded
at the
ORIGINAL COST
of the asset
3
4
5
6
7
211IN (BUY)
OUT (SELL)
Show how you would record in the firm’s book for 2 yearsSlide28
Section C –
WITH DISPOSAL A/C
Depreciation on Vehicle Account
2001
$
$
2001
Provision for depreciation
4,000
Dec 31
sec A
sec B
sec C
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4,000
Profit & Loss A/c
Dec 31
2002
Provision for depreciation
4,000
Dec 31
2002
4,000
Profit & Loss A/c
Dec 31
$20,000 x 20%
LEDGER ENTRIES:
3
4
5
6
7
2
1
2Slide29
Section C –
WITH DISPOSAL A/C
Provision for Depreciation of Vehicle Account
2001
2001
$
$
8,000
8,000
8,000
sec A
sec B
sec C
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Dec 31
Depreciation
4,000
Dec 31
Balance c/d
4,000
2002
4,000
Balance b/d
Dec 31
2002
Disposal of vehicle
Dec 31
4,000
Dec 31
Depreciation
$20,000 x 20%
LEDGER ENTRIES:
3
4
5
6
7
2
1
3Slide30
What is the amount of the provision for depreciation that is required to be transferred to
the vehicle disposal account?= FULL AMOUNT of the accumulated depreciation on the DISPOSED ASSET up to the date of sale.= Cost Price x Rate of depreciation x Usage= $20,000 x 20% x 2= $ 8,000
Section C –
WITH DISPOSAL A/C
sec A
sec B
sec C
LEDGER ENTRIES:
3
4
5
6
7
2
1
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Section C –
WITH DISPOSAL A/C
Disposal of Vehicle Account
2002
2002
$
$
Vehicle
20,000
Dec 31
23,000
23,000
sec A
sec B
sec C
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8,000
Provision for depreciation
Dec 31
Bank
15,000
Dec 31
Profit
& Loss
3,000
Dec 31
LEDGER ENTRIES:
3
4
5
6
7
2
1
4Slide32
Section C –
WITH DISPOSAL A/C
Bank Account
$
sec A
sec B
sec C
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LEDGER ENTRIES:
3
4
5
6
7
2
1
5
Vehicle
20,000
Jan 1
2001
Bank Account
2002
$
Disposal of vehicle
15,000
Dec 31Slide33
Profit and Loss for the year ended 31 Dec 2001
2001
$
Depreciation of vehicle
4,000
Dec 31
Section C –
WITH DISPOSAL A/C
sec A
sec B
sec C
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LEDGER ENTRIES:
3
4
5
6
7
2
1
7
Profit and Loss for the year ended 31 Dec 2002
2002
2002
$
$
Depreciation of vehicle
4,000
Dec 31
3,000
Disposal of Vehicle
Dec 31Slide34
Lessons Learnt
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3 Reasons for Disposal of Fixed Assets:
Obsolescence
High costs of repairs and maintenance
Frequent breakdown
Gain/Loss on Disposal when:
Selling Price >/< Net Book Value
Two methods of recording Disposal of Fixed Assets:
With a separate disposal of fixed assets account
Without a disposal of fixed assets account
sec A
sec B
sec CSlide35
DISPOSAL OF FIXED ASSETS
DEBIT
CREDIT
Steps
Lessons Learnt
Bank (cash received)
3
Disposal of fixed asset
Fixed asset (trade in)
Disposal of fixed asset
Disposal of fixed asset
Fixed Asset
Provision for depreciation
Disposal of fixed asset
2
1
Provision for depreciation
Depreciation
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sec A
sec B
sec C
Depreciation
Transfer
Receive?Slide36
Lessons Learnt
DISPOSAL OF FIXED ASSETS
DEBIT
CREDIT
Steps
4
Disposal of fixed asset
(If Loss) Profit & Loss
Disposal of fixed asset
(If Profit) Profit & Loss
5
Profit & Loss A/C
Depreciation of FA
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sec A
sec B
sec C
Profit/Loss?
ClosingSlide37
Lessons Learnt
5 STEPS to RECORD DISPOSAL OF FIXED ASSETS
(1) Depreciation
(2) Transfer
(3) Received?
(4) Profit/Loss?
(5) Closing
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sec A
sec B
sec CSlide38
Credits
micro
teachings
Prepared by
Tan Seet Ling, Patrina
31 October 2001
national institute of education
copyright 2001
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