Transcript PowerPoint Presentation 3

Disposal of Fixed Assets III
Introduction
• Objectives:
– State the 3 reasons for disposal
– Recognise and calculate the gain/loss on
disposal of fixed assets
– Record disposal of fixed asset
– Prepare fixed asset a/c, provision for disposal
a/c and disposal of fixed asset a/c
• Target group: Secondary 3 express
quit
Contents
Section A: Group Formation
Section B: Recording of Disposal of
Fixed Assets involving 3
assets
Section C: Recording of Disposal of
Fixed Assets involving 3
assets with a change of
biz policy
quit
Section A – Group Formation
Team 1
1
Team 2
1
Team 3
2
4
Team 5
3
5
Team 4
Team 6
2
4
5
3
Represent member x with card x
quit
sec A
sec B
sec C
Section B
EXAMPLE 3: (Worksheet D)
Mr. BUBU started a fruit business on 1 July 2000. To improve
his business, he bought two machines on 1 Jan 2001 for
$10,000 each, paying by cheque. He charged depreciation on
the machines at 10% per annum for each year by the reducing
or diminishing balance method. Depreciation was to be
recorded in a separate Provision for Depreciation Account. On
30 June 2002, after allowing for the year’s depreciation, he
sold one of the machines for $8,800 which he put into the
bank. On 1 October 2002, he bought another new machine on
credit from MUMU for $20,000.
quit
sec A
sec B
sec C
Section B
EXAMPLE 3: (Worksheet D)
BUBU’s financial year ends on 31 December.
(i) Prepare the Machinery Account for each of the
two years 2001 and 2002.
(ii) Prepare the Provision for Machinery
Depreciation Account for the two years
(iii) Prepare the Machinery Disposal Account for
2002.
quit
sec A
sec B
sec C
Section B
LEDGER
ENTRIES:
IN (BUY)
2001
Jan 1 Bank
At Cost Price
Machinery Account
OUT (SELL)
$
2001
20,000 Dec 31 Balance c/d
$
20,000
(2x$10,000)
2002
Jan 1 Balance b/d
Oct 1 MUMU
2003
Jan 1
quit
2002
20,000 Dec 31 Disposal of
20,000
Machinery
Dec 31 Balance c/d
40,000
10,000
30,000
40,000
Balance b/d 30,000
sec A
sec B
sec C
Section B
LEDGER
ENTRIES:
Provision for Depreciation of Machinery Account
2001
Dec 31 Balance c/d
$
2,000
2001
Dec 31 Depreciation
$
2,000
($20,000x10%)
2002
Dec 31 Disposal of
Machinery
Dec 31 Balance c/d
1,450
2,000
1,850
2,400
3,850
quit
2002
Dec 31 Balance b/d
Dec 31 Depreciation
2002
Dec 31 Balance b/d
sec A
3,850
2,400
sec B
sec C
Section B
LEDGER
ENTRIES:
Disposal of Machinery Account
2002
Jun 30 Machinery
Dec 31 Profit on
disposal
$
2002
10,000 Dec 31 Provision for
depreciation
250
Dec 31 Bank
Balancing
10,250
figure
quit
$
1,450
8,800
10,250
sec A
sec B
sec C
Section B
Provision for
depreciation
Selling Price = Amount received for the
disposal
= $8,800
Net Book Value = Price at - Total accumulated
cost
depreciation
= $10,000 - $1,450
= $ 8,550
Gain on disposal = SP – NBV
= $ 8,800 - $ 8,550
= $ 250
quit
sec A
sec B
sec C
Section B
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.
= Year 1 Depreciation + Year 2 Depreciation
= (Cost Price x Rate) + [(Cost Price – Year 1) x Rate x Usage]
Depreciation
= ($10,000 x 10%) + [($10,000-$1,000) x 10% x ½]
= $ 1,000 + $ 450
= $ 1,450
quit
sec A
sec B
sec C
Section B
What is the depreciation for the 3 machines in year 2002?
• Machine A (Bought on 1 Jan 2001)
= ($10,000-$1,000) x 10%
= $ 900
• Machine B (Dispose off on 30 June 2002)
= ($10,000-$1,000) x 10% x ½
= $ 450
• Machine C (Bought on 1 Oct 2002)
= $20,000 x 10% x 3/12
= $ 500
Therefore total depreciation = $900 + $450 +$500
= $1850
quit
sec A
sec B
sec C
Section C
EXAMPLE 4:
Mr. BUBU bought two machines on 1 Jan 2001 for $10,000
each, paying by cheque. He charged depreciation on the
machines at 10% per annum for each year by the reducing or
diminishing balance method. His policy is to charge a full
year’s depreciation in the year of purchases but not
charge any in the year of sales. On 30 June 2002, he sold
one of the machines for $8,800 which he put into the bank. On
1 October 2002, he bought another new machine on credit
from MUMU for $20,000.
quit
sec A
sec B
sec C
Section C
EXAMPLE 4:
BUBU’s financial year ends on 31 December.
(i) Prepare the Machinery Account for each of the
two years 2001 and 2002
(ii) Prepare the Provision for Machinery
Depreciation Account for the two years
(iii) Prepare the Machinery Disposal Account for
2002.
quit
sec A
sec B
sec C
Section C
LEDGER
ENTRIES:
IN (BUY)
2001
Jan 1 Bank
At Cost Price
Machinery Account
OUT (SELL)
$
2001
20,000 Dec 31 Balance c/d
$
20,000
(2x$10,000)
2002
Jan 1 Balance b/d
Oct 1 MUMU
2003
Jan 1
quit
2002
20,000 Dec 31 Disposal of
20,000
Machinery
Dec 31 Balance c/d
40,000
10,000
30,000
40,000
Balance b/d 30,000
sec A
sec B
sec C
Section C
LEDGER
ENTRIES:
Provision for Depreciation of Machinery Account
2001
Dec 31 Balance c/d
$
2,000
2001
Dec 31 Depreciation
$
2,000
($20,000x10%)
2002
Dec 31 Disposal of
Machinery
Dec 31 Balance c/d
1,000
2,000
2,900
3,900
4,900
quit
2002
Dec 31 Balance b/d
Dec 31 Depreciation
2002
Dec 31 Balance b/d
sec A
4,900
3,900
sec B
sec C
Section C
LEDGER
ENTRIES:
Disposal of Machinery Account
2002
Jun 30 Machinery
$
2002
10,000 Dec 31 Provision for
depreciation
Dec 31 Bank
$
1,000
8,800
Dec 31 Loss on
disposal
10,000
quit
200
10,000
Balancing
figure
sec A
sec B
sec C
Section C
Provision for
depreciation
Selling Price = Amount received for the
disposal
= $8,800
Net Book Value = Price at - Total accumulated
cost
depreciation
= $10,000 - $1,000
= $ 9,000
Loss on disposal = NBV – SP
= $ 9,000 - $ 8,800
= $ 200
quit
sec A
sec B
sec C
Section C
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.
= Year 1 Depreciation + Year 2 Depreciation
= (Cost Price x Rate) + (No depreciation charged in the year)
of sales
= ($10,000 x 10%) + 0
= $ 1,000
quit
sec A
sec B
sec C
Section C
What is the depreciation for the 3 machines in year 2002?
• Machine A (Bought on 1 Jan 2001)
= ($10,000-$1,000) x 10% =
$ 900
• Machine B (Dispose off (sold/out) on 30 June 2002)
= Do not charge any depreciation in the year of sales
=
zero
• Machine C (Bought on 1 Oct 2002)
= Charge a full year’s depreciation in the year of
purchases
= $20,000 x 10%
Total depreciation
quit
= $ 2000
= $900 + $2,000
= $2,900
sec A
sec B
sec C
Lessons Learnt
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
quit
sec A
sec B
sec C
Lessons Learnt
DISPOSAL OF FIXED ASSETS
DEBIT
Steps
CREDIT
Depreciation
Depreciation
1 Provision
Disposal of fixed asset
for depreciation
Fixed Asset
Transfer
2
Provision for depreciation
Disposal of fixed asset
Bank (cash received)
Fixed asset (trade in)
quit
Receive?
3
Disposal of fixed asset
Disposal of fixed asset
sec A
sec B
sec C
Lessons Learnt
DISPOSAL OF FIXED ASSETS
DEBIT
Steps
CREDIT
Loss on disposal
Disposal of fixed asset
Profit/Loss?
4
Disposal of fixed asset
Profit on disposal
Profit & Loss A/C
Depreciation of FA
Profit on disposal
Profit & Loss A/C
quit
Closing
5
Profit & Loss A/C
Loss on disposal
sec A
sec B
sec C
Lessons Learnt
5 STEPS to RECORD DISPOSAL OF
FIXED ASSETS
(1) Depreciation
(2) Transfer
(3) Received?
(4) Profit/Loss?
(5) Closing
quit
sec A
sec B
sec C
Lessons Learnt
RECORD DISPOSAL OF FIXED
ASSETS INVOLVING:
• One fixed asset bought and sold
• Two fixed assets bought and sold one later
• Three fixed assets:
(1) 2 fixed assets bought
(2) 1 of the 2 fixed assets will be sold later
(3) Buy a new fixed asset
• Fixed assets with change in company’s
depreciation policy
quit
sec A
sec B
sec C
Prepared by
Tan Seet Ling, Patrina
31 October 2001
national institute of education
copyright 2001
micro
teachings
quit