Required:
Complete the following asset registers.
Information:
Example
Vehicle purchased: Cost price R80 000
Equipment: Cost price: R20 000
Transaction:
A. DEPRECIATION AT COST PRICE:
Schie Traders No.1 General ledger account: Vehicle account (B 6) | |||
Details | Annual depreciation calculations | Accumulated depreciation | Book value or known as “Carrying value” |
End of first year | |||
End of second year | |||
End of third year | |||
End of fourth year | |||
End of fifth year |
Cost price – accumulated depreciation = book value/CARRYING VALUE
Fixed assets can only be depreciated till the fixed asset reach the scrap value of R1, therefore the CARRYING VALUE of the fixed asset cannot be less than R1.
Schie Traders No.2 General ledger account: Equipment account (B 7) | |||
Details | Annual depreciation calculations | Accumulated depreciation | Book value or known as “Carrying value” |
End of first year | |||
End of second year | |||
End of third year | |||
End of fourth year | |||
End of fifth year |
Introduction
At the end of each financial year the asset register will be updated by calculating depreciation on all fixed assets. The total depreciation will then be recorded in the General Journal as the depreciation for the year. Depreciation is a legal way of decreasing the net profit so that less tax can be paid. However when the fixed asset reaches the end of its lifespan no more depreciation can be calculated. Depreciation can only be calculated till the asset reaches a carrying value of R1.
(Cost price minus Accumulated depreciation = carrying value)
DR VEHICLE ACCOUNT CR | |
Balance b/d 100 000 |
DR ACCUMULATED DEPRECIATION CR | |
Balance b/d 99 999 |
ASSET DISPOSAL | |||
Vehicle Profit on sale of asset | 100 000 39 999 (Because of the scrap value of R1, the profit is R39 999) 139 999 | Accum. depreciation Bank | 99 999 40 000 139 999 |
Example
Vehicle is sold for R40 000 cash.
Cost price of vehicle: R100 000
Accumulated depreciation: R 90 000
Carrying value = R 10 000
Depreciation is calculated at 20% on Cost price
ASSET DISPOSAL | |||
Vehicle Profit on sale of asset | 100 000 | Accum. depreciation Bank | 100 000 40 000 140 000 |
Note 3 to the Balance sheet:
3. Property , plant and equipment | Land and buildings | Vehicles | Equipment | Total |
Cost Price | 60 000 | |||
– Accumulated Depreciation | (20 000) | |||
= Carrying value on the last day of the previous year | 40 000 | |||
Movements: | ||||
+ Additions at cost price | 30 000 | |||
– Disposals at carrying value (book value) | (5 000) | |||
– Depreciation for the year | (15 000) | |||
= Carrying value on the last day of current year | 50 000 | |||
Cost Price | 85 000 | |||
– Accumulated Depreciation at end of year | (35 000) | |||
= Carrying value on the last day of current year | 50 000 |
Steps to follow when disposing a fixed asset:
General Ledger accounts
There are different formats of Note 3; however they have the same entries. Make sure that you use the format of one of the approved text books.
General Ledger of Star Traders
DR VEHICLES (FA ) B1 CR | |||||||||
2013 Mar | 1 | Balance | B/d | 180 000 | 2013 Dec | 31 | Asset disposal | GJ | 100 000 |
May | 10 | Creditors control | CJ | 150 000 | 2014 Feb | 28 | Balance | c/d | 280 000 |
Oct | 10 | Bank | CPJ | 50 000 | |||||
380 000 | 380 000 | ||||||||
2014 Mar | 1 | B/d | B/d 280 000 |
DR ACCUMULATED DEPRECIATION ON VEHICLES (-A) B2 CR | |||||||||
2013 Dec | 31 | Asset Disposal (20000 + 5000) | GJ | 25 000 | 2013 Mar | 1 | Balance | B/d | 60 000 |
Balance | C/d | 40 000 | Dec | 31 | Depreciation (additional) | GJ | 5 000 | ||
65 000 | B/d | 65 000 | |||||||
2014 Feb | 28 | Balance | C/d | 50 000 | Balance (Accu. Depreciation. of the remaining vehicles) | GJ | 40 000 | ||
2014 Feb | 28 | Depreciation (end of year) | GJ | ||||||
Mar | 1 | Balance | b/d |
DR ASSET DISPOSAL (calculation) B3 CR | |||||||||
2013 Dec | 31 | Vehicles | GJ | 100 000 | 2013 Dec | 31 | Accumulated depreciation on vehicles | GJ | 25 000 |
Profit on sale of asset | GJ | 5 000 | Debtors control | GJ | 80 000 | ||||
105 000 | 105 000 |
NOTE: Debtors control – when a vehicle was sold on credit
Bank – when a vehicle was sold for cash
Creditors control – when a vehicle was traded in to a secondhand dealer
Drawings – When owner took asset for own purposes
Donation – When a vehicle was donated.
Asset Disposal account must be closed off. (The Asset Disposal account will never have a balance because the difference will either be a profit on sale of asset or a loss on sale of asset)
DR DEPRECIATION (e) N CR | |||||||||
2013 Dec | 31 | Accumulated depreciation on vehicles (additional) | GJ | 5 000 | 2014 Feb | 28 | Profit and loss (depreciation for the whole year) | GJ | 35 000 |
2014 Feb | 28 | Accumulated depreciation on vehicles (end of year) | GJ | 10 000 | |||||
Accumulated depreciation on equipment | GJ | 20 000 | |||||||
35 000 | 35 000 |
DR PROFIT ON SALE OF ASSET (i) N CR | |||||||||
2013 Dec | 31 | Profit and loss account | GJ | 5 000 | 2014 Feb | 28 | Asset disposal | GJ | 5 000 |
OR
DR LOSS ON SALE OF ASSET (e) N CR | |||||||||
2013 Dec | 31 | Asset disposal | GJ | 0 | 2014 Dec | 31 | Profit and loss account | GJ | 0 |
Example 2 on note 3 in the Financial Statements
REQUIRED:
Complete Note 3 of the Balance sheet
INFORMATION:
Make use of the format and complete Note 3 from the financial Statements.
Name of Company _________________________________
BALANCE SHEET AT ________________________________
Notes | |
ASSETS | |
Non-current assets | |
Property, plant and equipment |
NOTES TO THE BALANCE SHEET
3. Property, plant and equipment | Vehicles |
Cost Price | |
Accumulated Depreciation | |
Carrying value on the last day of the previous year | |
Movements: | |
Additions at cost | |
Disposals at carrying value (book value) | |
Depreciation for the year | |
Carrying value on the last day of current year | |
Cost Price | |
Accumulated Depreciation | |
Carrying value on the last day of current year |
Memorandum of example 1
Calculation of Depreciation and cost price and carrying value
SCHIE TRADERS NO.1 Percentage Depreciation: 20 % p.a. at cost price/straight line method | |||
Details | Annual depreciation Calculations | Accumulated depreciation | Book value or known as “Carrying value” |
End of first year | 80 000 × 20%= 16 000 | 16 000 | 64 000 (80 000 – 16 000) |
End of second year | 80 000 × 20%= 16 000 | 32 000 | (80 000 – 32 000) 48 000 |
End of third year | 80 000 × 20%= 16 000 | 48 000 | 32 000 |
End of fourth year | 80 000 × 20%= 16 000 | 64 000 | 16 000 |
End of fifth year | 80 000 × 20%= 16 000 15 999 (Cannot depreciate R16 000, because of the scrap value of R1. Therefore can only depreciate R15 999) | (64 000 + 15 999) 79 999 | (80 000 – 79 999) R1 |
SCHIE TRADERS NO.2 Percentage Depreciation: 10 % p.a. at carrying value/ book value or | |||
Details | Annual depreciation Calculations | Accumulated depreciation | Book value or known as “Carrying value” |
Cost price R20 000 End of first year | 20 000 × 10% × 6/12 = 1 000 | 1 000 | 19 000 |
End of second year | 19 000 × 10% = 1 900 | (2 000 + 1 900) 2 900 | (20 000 – 2 900) 17 100 |
End of third year | 17 100 × 10% = 1 710 | 4 610 | 15 390 |
End of fourth year | 15 390 × 10% = 1 539 | 6 149 | 13 851 |
End of fifth year | 13 851 × 10% – 1 385, 10 | 7 534,10 | 12 465,90 |
Memorandum of example 2
REQUIRED:
Complete the note to the financial statements by using the given ledger accounts
Name of Company _________________________________
BALANCE SHEET AT ________________________________
Notes | ||
ASSETS | ||
Non-current assets | 230 000 | |
Property, plant and equipment (at carrying value) | 230 000 |
NOTES TO THE BALANCE SHEET
3. Property, plant and equipment | Vehicles |
Cost Price | 180 000 |
Accumulated Depreciation | (60 000) |
Carrying value on the last day of the previous year | 120 000 |
Movements: | |
Additions at cost (150 000 + 50 000) | 200 000 |
Disposals at carrying value (100 000 – 25000) | (75 000) |
Depreciation for the year (5 000 + 10 000) | (15 000) |
Carrying value on the last day of current year | 230 000 |
Cost Price | 280 000 |
Accumulated Depreciation | (50 000) |
Carrying value on the last day of current year | 230 000 |
SCHEMATIC ILLUSTRATION OF FIXED ASSETS IN A BUSINESS | |||||||||||
ASSET REGISTERS | GENERAL LEDGER ACCOUNTS | BALANCE SHEET | |||||||||
DEPRECIATION AT COST PRICE | VEHICLES | ASSETS | |||||||||
ASSET REGISTER OF VEHICLE SOLD | Balance b/d | 100 000 | Asset disposal GJ | 30 000 | Non-Current Assets | ||||||
Cost price: R30 000 Depreciation: 20% at Cost price | Creditors con CJ | 50 000 | Balance c/d | 120 000 | Fixed assets at CV | 76 120 | |||||
Date | Depreciation | Accu Depr | CV | 150 000 | 150 000 | NOTES TO THE BALANCE SHEET | |||||
28 Feb’10 | 30 000 × 20% × 8/12 = 4000 | 4 000 | 26 000 | Balance b/d | 120 000 | Note 3: FIXED ASSETS | Vehicles | Equipment | Total | ||
28 Feb’11 | 30 000 × 20% × 12/12 = 6000 | 10 000 | 20 000 | ACCUMULATED DEPRECIATION ON VEHICLE (-A) | Cost price | 100 000 | 10 000 | 110 000 | |||
1 Sept’11 | 30 000 × 20% × 6/12 = 3000 | 13 000 | 17 000 | Asset disposal | 13 000 | Balance b/d | 40 000 | –Accumulated depreciation | (40 000) | (3 600) | 43 600 |
ASSET REGISTER OF REMAINING VEHICLE | (10 000 + 3 000) | Depreciation | 3 000 | = Carrying value at begin | 60 000 | 6 400 | 66 400 | ||||
Cost price: R70 000 Accumulated depreciation:R30 000 | Balance c/d | 49 000 | Depreciation | 19 000 | Movements | ||||||
(14000+5000) | + Additions at Cost price | 50 000 | - | 50 000 | |||||||
Date | Depreciation | Accu Depr | CV | 62 000 | 62 000 | – Disposals at carrying value | (17 000) | - | (17 000) | ||
28 Feb’12 | 70 000 × 20% × 12/12 = 14000 | 44 000 | 26 000 | Balance b/d | 49 000 | – Depreciation 2 + 6 | (22 000) | (1 280) | (23 280) | ||
= Carrying value at end | 71 000 | 5 120 | 76 120 | ||||||||
ASSET REGISTER OF REMAINING NEW VEHICLE | ASSET DISPOSAL | Cost price at end | 120 000 | 10 000 | 130 000 | ||||||
Cost price: R50 000 bought 6 months ago | Vehicle GJ | 30 000 | Accum. depre | 13 000 | – Accumulated depreciation | (49 000) | (4 880) | (53 880) | |||
Date | Depreciation | Accu Depr | CV | Profit sale of asset | 1 000 | Bank | 18 000 | = Carrying value at end | 71 000 | 5 120 | 76 120 |
28 Feb’12 | 50 000 × 20% × 6/12 = 5 000 | 5 000 | 45 000 | 31 000 | 31 000 | ||||||
Know the steps to dispose of a fixed asset well: | |||||||||||
DEPRECIATION AT CARRYING VALUE | DEPRECIATION | Step 1 | Transfer the cost price to Asset disposal | ||||||||
Accum depre: V | 3 000 | Profit and loss | 23 280 | Step 2 | Calculate additional depreciation | ||||||
ASSET REGISTER OF COMPUTER/EQUIPMENT | Accum depre: V | 19 000 | Step 3 | Transfer total depreciation to Asset disposal | |||||||
Cost price: R10 000 depreciation: 20% on CV | Accum depre: Eq | 1 280 | Step 4 | Record the selling price in Asset disposal | |||||||
Date | Depreciation | Accu Depr | CV | 23 280 | 23 280 | a | Cash | Bank | |||
28 Feb’10 | 10 000 × 20% × 12/12 = 2000 | 2 000 | 8 000 | On Credit | Debtors control | ||||||
28 Feb’11 | 8 000 × 20% × 12/12 = 1600 | 3 600 | 6 400 | PROFIT ON SALE OF ASSET | Trade in | Creditors Control | |||||
28 Feb’12 | 6 400 × 20% × 12/12 = 1280 | 4 880 | 5 120 | Profit and loss | 1 000 | Asset disposal | 1 000 | By owner | Drawings | ||
Donated | Donation | ||||||||||
PROFIT AND LOSS ACCOUNT (F2) N | Step 5 | Calculate the profit or loss on sale of asset | |||||||||
Depreciation | 26 280 | Trading account | xxxx | AT THE END OF THE YEAR: | |||||||
Profit on sale | 1 000 | Step 6 | Calculate the depreciation of all old remaining and the new fixed assets |