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Disposal of Fixed Assets II

Disposal of Fixed Assets II. quit. Example 2. EXAMPLE 2: Mr. BUBU bought two delivery van on 1 Jan 2001 for $20,000 each . He charged depreciation on the machines at 20% per annum for each year . On 30 June 2002 , after allowing for the year’s depreciation,

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Disposal of Fixed Assets II

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  1. Disposal of Fixed Assets II

  2. quit Example 2 EXAMPLE 2: Mr. BUBU bought two delivery van on 1 Jan 2001 for $20,000 each. He charged depreciation on the machines at 20% per annum for each year. On 30 June 2002, after allowing for the year’s depreciation, he soldone of the delivery van for $15,000 which he put into the bank.

  3. quit Example 2 • EXAMPLE 2: • BUBU’s financial year ends on 31 December. • Prepare the Machinery Account for each of the two years 2001 and 2002. • Prepare the Provision for Machinery Depreciation Account for the two years • Prepare the Machinery Disposal Account for 2002.

  4. quit Time Line I – Previous Example 1 Selling Price IN $15,000 Depreciation 20% per annum I Jan 2001 $4,000 31 Dec 2001 $4,000 31 Dec 2002 OUT $20,000 Cost Price

  5. quit Time Line 2 – Example 2 Selling Price IN $15,000 Depreciation 20% per annum I Jan 2001 $8,000 31 Dec 2001 ? 30 Jun 2002 OUT $20,000 $20,000 Cost Price

  6. quit Depreciation • Total depreciation in year 2001 = $40,000 x 20% • = $ 8,000 • Total depreciation in year 2002 = $ 6,000 • Machine A (Bought on 1 Jan 2001) • = $20,000 x 20% • = $ 4,000 • Machine B (Dispose off on 30 June 2002) • = $20,000 x 20% x ½ • = $ 2,000 • Therefore total depreciation = $8,000 + $6,000 • = $14,000

  7. quit Gain/Loss on Disposal Provision for depreciation Selling Price = Amount received for the disposal = $15,000 Net Book Value = Price at - Total accumulated cost depreciation = $20,000 - $6,000 = $ 14,000 Gain on disposal = SP – NBV = $ 15,000 - $ 14,000 = $ 1,000

  8. quit Total accumulated depreciation What is the amount of the provision for depreciation that is required to be transferred to the vehicle disposal account? = FULL AMOUNTof the accumulated depreciation on the DISPOSED ASSETup to the date of sale. = Year 1 Depreciation + Year 2 Depreciation = (Cost Price x Rate) + (Cost Price x Rate x Usage) = ($20,000 x 20%) + ($20,000 x 20% x ½) = $ 4,000 + $ 2,000 = $ 6,000

  9. Jan 1 Bank Dec 31 Balance c/d 40,000 2002 2002 Jan 1 Balance b/d 40,000 Jun 30 Disposal of Machinery Dec 31 Balance c/d 20,000 40,000 40,000 2003 Jan 1 Balance b/d 20,000 quit Example 2 At Cost Price LEDGER ENTRIES: Machinery Account IN (BUY) OUT (SELL) $ $ 2001 2001 40,000 (2x$20,000) 20,000

  10. Dec 31 Dec 31 Balance c/d Balance c/d 8,000 8,000 Dec 31 Depreciation 2002 2002 2002 Dec 31 Disposal of Machinery Dec 31 Dec 31 Balance b/d Balance b/d 8,000 8,000 Dec 31 Depreciation 14,000 14,000 quit Example 2 LEDGER ENTRIES: Provision for Depreciation of Machinery Account 2001 $ 2001 $ 8,000 ($40,000x20%) 6,000 6,000

  11. Jun 30 Machinery Dec 31 Provision for depreciation Dec 31 Profit on disposal Dec 31 Bank 21,000 21,000 quit Example 2 LEDGER ENTRIES: Disposal of Machinery Account 2002 $ 2002 $ 20,000 6,000 1,000 15,000 Balancing figure

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