accounting practices 501 chapter 9 disposal of fixed assets cathy saenger, senior lecturer, eastern...
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Accounting Practices 501
Chapter 9
Disposal of fixed assets
Cathy Saenger, Senior Lecturer, Eastern Institute of Technology © Pearson 2011
Disposal
Ch9B - Disposal 2
What happens when we get rid of a fixed asset, by selling it?
$20,000
Disposal
Ch9B - Disposal 3
There are a few things to think about
1. Record the proceeds of the disposal (cash or other)
4. Close the disposal account by transferring the balance to a gain on disposal or a loss on disposal account
$20,000
2. Close the fixed asset account (Computers)3. Close the accumulated depreciation account (Computers)
Depreciation is not calculated in the yearof disposal
Steps to follow for the disposal of an asset:
Disposal
Ch9B - Disposal 4
1. Record the proceeds of the disposal (cash or other)
4. Close the disposal account by transferring the balance to a gain on disposal or a loss on disposal account
$20,000
2. Close the fixed asset account (Computers)
Depreciation is not calculated in the yearof disposal
Steps to follow for the disposal of an asset:
All the above are done through a temporary Disposal account
3. Close the accumulated depreciation account (Computers)
Disposal
Ch9B - Disposal 5
Extract from Trial Balance at date of disposal
Dr Cr
Computers at cost 20,000
Accum. Deprec (Computers)
12,000
Can you see that the book value of the Computers is $8,000?
Book value = Cost price less accum. deprec.
On 1 Feb 20X2: Sold computers for cash, $6,000 (GST exclusive)
We can therefore immediately see that we received less than it was worth,
which means a loss of $2,000 (8,000-6,000)
Disposal
Ch9B - Disposal 6
Extract from Trial Balance at date of disposal
Dr Cr
Computers at cost 20,000
Accum. Deprec (Computers)
12,000
On 1 Feb 20X2: Sold computers for cash, $6,000 (GST exclusive)
Step 1. Record the proceeds of the disposal (cash)
Date Account Titles
Debit
Credit1/2/X2
GST Collected6,900
General Journal
Bank 900
Being entry required to record sale of computers
Disposal (Computers) 6,000
Disposal
Ch9B - Disposal 7
Step 1. Record the proceeds of the disposal (cash)
Date Account Titles
Debit
Credit1/2/X2
GST Collected6,900
General Journal
Bank 900
Being entry required to record sale of computers
Disposal (Computers) 6,000
Date
General LedgerDetails Ref Dr Cr Balanc
eDisposal (Computers)1/2/X2 Bank 6,00
06,000 CrGJ
Lets post to the Disposal account in the Gen Ledger
Disposal
Ch9B - Disposal 8
Extract from Trial Balance at date of disposal
Dr Cr
Computers at cost 20,000
Accum. Deprec (Computers)
12,000
On 1 Feb 20X2: Sold computers for cash, $6,000 (GST exclusive)
Step 2. Close the asset account
Date Account Titles
Debit
Credit1/2/X2
Computers at cost
General Journal
20,000Being entry required to close
the asset accounts
Disposal (Computers) 20,000
Disposal
Ch9B - Disposal 9
Step 2. Close the asset account
Date Account Titles
Debit
Credit1/2/X2
Computers at cost
General Journal
20,000Being entry required to close
the asset and accum deprec accounts
Disposal (Computers) 20,000
Date
General LedgerDetails Ref Dr Cr Balanc
eDisposal (Computers)1/2/X2 Bank 6,00
06,000 CrGJ
Lets post to the Disposal account in the Gen Ledger
Comp at cost 20,000
14,000 Dr
GJ
Disposal
Ch9B - Disposal 10
Extract from Trial Balance at date of disposal
Dr Cr
Computers at cost 20,000
Accum. Deprec (Computers)
12,000
On 1 Feb 20X2: Sold computers for cash, $6,000 (GST exclusive)
Step 3. Close the accum depreciation account
Date Account Titles
Debit
Credit1/2/X2
General Journal
Being entry required to close the accum deprec account
Disposal (Computers) 12,000
Accum. Deprec. (Computers)
12,000
Disposal
Ch9B - Disposal 11
Step 3. Close the accum depreciation account
Date Account Titles
Debit
Credit1/2/X2
General Journal
Being entry required to close the accum deprec account
Disposal (Computers) 12,000
Accum. Deprec. (Computers)
12,000
Date
General LedgerDetails Ref Dr Cr Balanc
eDisposal (Computers)1/2/X2 Bank 6,00
06,000 CrGJ
Lets post to the Disposal account in the Gen Ledger
Comp at cost 20,000
14,000 Dr
GJAccum deprec 12,00
0 2,000 Dr
GJ
Disposal
Ch9B - Disposal 12
Step 4. Close the disposal account
Date
General LedgerDetails Ref Dr Cr Balanc
eDisposal (Computers)1/2/X2 Bank 6,00
06,000 CrGJ
Comp at cost 20,000
14,000 Dr
GJAccum deprec 12,00
0 2,000 Dr
GJ
The balance in the Disposal account represents the loss on disposal of the
computers - the book value was $8000 and we sold it for $6000
Date Account Titles
Debit
Credit1/2/X2
General Journal
Being entry required to close the disposal account and record the loss
Disposal (Computers) 2,000
Loss on disposal 2,000
Disposal
Ch9B - Disposal 13
Step 4. Close the disposal account
Date
General LedgerDetails Ref Dr Cr Balanc
eDisposal (Computers)1/2/X2 Bank 6,00
06,000 CrGJ
Comp at cost 20,000
14,000 Dr
GJAccum deprec 12,00
0 2,000 Dr
GJ
Date Account Titles
Debit
Credit1/2/X2
General Journal
Being entry required to close the disposal account and record the loss
Disposal (Computers) 2,000
Loss on disposal 2,000
Lets post to the disposal account
Loss on disposal
2,000
NILGJ
Disposal
Ch9B - Disposal 14
The same steps are followed in the following cases:
Asset is sold for more than the book value, which would result in a gain on disposalAsset is written off, which would result in a loss on disposal equal to the book valueAsset is damaged and an insurance claim is received, which would result in a loss/gain on disposal (difference between the book value and the insurance claim)Asset is traded in for a new asset, which would result in a loss/gain on disposal (difference between the book value and the trade-in value)