FIXED ASSETS GRADE 12 NOTES - ACCOUNTING STUDY GUIDES

All fixed assets purchased by a business are not intended for resale but to be used in the operation of the business to assist in generating a profit.
Fixed assets are recorded at the price the asset was purchased called COST PRICE (GAAP principle, called Historical cost.)
Separate records are kept for every fixed asset purchased in an asset register. Full details of very asset is recorded on the asset register and the depreciation for the financial year is calculated and recorded in the asset register and kept up to date at all times.
Fixed assets are depreciated at cost price/ straight line method or at carrying value/ diminishing balance/ or called book value method.
For internal control purposes, the assets and the registers are regularly monitored.
When the asset is sold the asset register is updated; additional depreciation calculated, to whom it was sold and closed off as the asset does not belong to the business anymore.
At the end of each financial year all the relevant fixed assets are depreciated. Any depreciation on assets sold during the year, form part of the depreciation amount disclosed in the Income Statement.

8.2 Asset register

Required:
Complete the following asset registers.
Information:
Example
Vehicle purchased: Cost price R80 000
Equipment: Cost price: R20 000
Transaction:

Depreciation on vehicles must be brought into account at 20% per annum on cost price.
Depreciation on equipment must be calculated at 10% per annum on carrying value.

A. DEPRECIATION AT COST PRICE:

Schie Traders No.1 Asset register General ledger account: Vehicle account (B 6) Item: TOYOTA delivery van 3 litre Date purchased: 1 March 2009 From whom purchased: Toyota Whiteriver Cost price: R80 000 Percentage Depreciation: 20 % p.a. at cost price/straight line method Details of depreciation
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 Asset register General ledger account: Equipment account (B 7) Item: Office computer Date purchased: From whom purchased: DARRYN FURNITURES Cost price: R20 000 Percentage Depreciation: 10% p.a. at carrying value/book value or called diminishing value Details of depreciation
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

8.3 Residual value/or called scrap value of R1

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)

The R1 scrap value applies when an asset is depreciated. A Vehicle with a carrying value of RI cannot be depreciated the following year. (cost price minus accumulated depreciation = carrying value R100 000 – R 99 999 = R1

DR VEHICLE ACCOUNT CR

Balance b/d 100 000

DR ACCUMULATED DEPRECIATION CR

Balance b/d 99 999
When an asset is sold that has a carrying value of R1, the cost price and the total accumulated depreciation of the vehicle sold will be closed off to the Asset disposal account.

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
However when an asset is sold that has not reached its carrying value of R1 yet but will soon, the scrap value principle (carrying value of R1) is not applied in practice.
(In practice the scrap value principle is NOT applied when a fixed asset is sold that has not reached its R1 carrying value yet.)

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

Additional depreciation: 100 000 × 20% = R20 000
The carrying value is already R10 000 and that means that depreciation can only be R10 000.
A fixed asset cannot be depreciated less than the cost price of the vehicle. (And not R9 999!)

ASSET DISPOSAL
Vehicle Profit on sale of asset	100 000 40 000 (Because the principle of R1 is not applied, the profit is R40 000) 140 000	Accum. depreciation Bank	100 000 40 000 140 000

8.4 Note to the Balance Sheet and Asset disposal

Know the format and the steps to follow when an asset is sold.
Know all the ledger accounts involved in calculating the
- Additional depreciation when an asset is sold;
- Depreciation of all the existing fixed assets at the end of the financial year (except Land and buildings).
- Completion of Note 3 in the Balance sheet

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:

Find the cost price of fixed asset sold and move/transfer it to the Asset Disposal account.
Calculate any additional depreciation on fixed asset sold
Move/Transfer the total depreciation on fixed asset sold to Asset Disposal account.
Record the selling price of fixed asset sold in the Asset Disposal account.
Calculate the profit or the loss on sale of fixed asset sold.
At end of year, record the depreciation of the remaining fixed assets and new assets at the end of financial year.

General Ledger accounts

Study the following General Ledger accounts.
Ensure that you understand all the ledger accounts well.
The entries are examples of all possible transactions in the applicable general ledger accounts when fixed assets are bought or sold.
The procedure at the end of the financial year is also illustrated.

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

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 Asset register Percentage Depreciation: 20 % p.a. at cost price/straight line method Details of depreciation
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 Asset register Percentage Depreciation: 10 % p.a. at carrying value/ book value or called diminishing value Details of depreciation
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

Last modified on Wednesday, 08 September 2021 12:47

Published in Accounting Study Guide and Notes Grade 12