INFORMATION: Sold one of the vehicles which originally cost R150 000, for R90 000 on credit to I.M Station on 28 February 2010. The accumulated depreciation on this vehicle was R57 000 on 1 st March 2009. Vehicles are depreciated at 20% p.a. according to the diminishing balance method. A new vehicle was purchased on 1 st December 2009, from Bright Motors on credit. The financial year of the business ends on the last day of February each year. SECTION A: TYPICAL EXAM QUESTIONS
HINTS Asset disposal is an interim nominal account Make use of a table when doing Asset Disposal questions Depreciation Cost Price---- Accumulated Depreciation--- Carrying Value--- Selling Price Profit/ Loss on sale of asset-- GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING Grade 11 Session 11 (LEARNER NOTES)
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Vehicles account Mar 09 1 Balance b/d 196 000 Feb 2010 28 Asset disposal GJ 150 000 Dec 09 1 Creditors control CJ *248 000
Balance b/d 294 000 444 000 444 000 Mar 2010 1 Balance b/d 294 000 * Balancing figure between the two sides
Accumulated depreciation on vehicles Feb 2010 28 Asset disposal GJ 75 600 Mar 09 1 Balance b/d 88 000
HINTS Calculation: Depreciation on vehicle sold 150 000 57 000 = 93 000 x 20% = 18 600 Depreciation on new vehicle 248 000 x 20% x 3/12 = 12 400 Depreciation on remainder 196 000 150 000 = 46 000 cost of remainder 88 000 57 000 = 31 000 accumulated depreciation on remainder 46 000 31 000 = 15 000 x 20% = 3 000
Asset disposal account Feb 2010 28 Vehicles GJ 150 000 Feb 2010 28 Accumulated depreciation vehicles GJ 75 600 Profit on sale of asset 15 600 Debtors control GJ 90 000
165 600 165 600
Learner Note: Always follow the steps when doing a question on asset disposal SECTION B: SOLUTIONS AND HINTS
GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING Grade 11 Session 11 (LEARNER NOTES)
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Steps to be followed when recording the disposal of a fixed asset:
Step 1 DEPRECIATION Calculate and record the depreciation on the asset sold. (This does not apply if the asset was sold at the beginning of the year). DR Depreciation CR Accumulated Depreciation-Vehicles
Step 2 COST PRICE Transfer the asset sold to the Asset Disposal account. DR Asset Disposal CR Vehicles
Step 3 ACCUMULATED DEPRECIATION Transfer the total accumulated depreciation on that asset to the Asset Disposal account. # Total accumulated depreciation = Accumulated depreciation at the beginning of the year on that asset + the depreciation calculated as in step 1. DR Accumulated Depreciation-Vehicles CR Asset Disposal
Step 4 SELLING PRICE
Cash DR Bank CR Asset Disposal
Credit DR Debtors Control CR Asset Disposal
Trade in DR Creditors Control CR Asset Disposal
Owner took for personal use DR Drawings CR Asset disposal
Donated DR Donations CR Asset Disposal Insurance Claim DR Insurance Claim CR Asset Disposal SECTION C: ADDITIONAL CONTENT NOTES
GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING Grade 11 Session 11 (LEARNER NOTES)
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Step 5 Determine whether there is a profit or a loss on the disposal of the asset. If selling price > carrying value = Profit on sale of asset DR Asset Disposal CR Profit on sale of asset If selling price < carrying value = Loss on sale of asset DR Loss on sale of asset CR Asset disposal NB: Thereafter depreciation on the remainder of the fixed assets should be calculated, if the information is to be completed for the year-end. (percentage on carrying value/ book value)
(a) Purchase of fixed asset (b) Transfer the asset sold to the Asset Disposal account
Accumulated depreciation account Asset disposal (d) GJ xxx Balance B/d xxx Depreciation GJ xxx Balance C/d xxx Depreciation (e) xxx xxx xxx Balance B/d xxx (c) Depreciation calculated on the asset sold (d) Transfer of total accumulated depreciation on the asset sold to the Asset Disposal account. (e) Depreciation on the remainder of the asset
Nominal section Asset disposal account Fixed asset GJ xxx Accumulated depreciation GJ xxx Profit on sale of asset xxx Bank/Debtors/Creditors (f) xxx Loss on sale of asset xxx xxx xxx
OR (f) Recording the sale of the asset at the selling price
GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING Grade 11 Session 11 (LEARNER NOTES)
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QUESTION 1 30 Marks 20 Minutes The following information is extracted from the accounting records of Maps Traders.
The financial year ends on 31 October 2010
REQUIRED
1. Show the correct amount for depreciation and Profit/ loss on sale of asset in the Income Statement
2. Show the note to the financial statement for Equipment
INFORMATION
Trial balance on 31 October 2010
BALANCE SHEET ACCOUNTS SECTION
Equipment at cost R90 000 Accumulated depreciation on equipment R38 000
NOMINAL ACCOUNTS SECTION
Asset disposal R5 400 Depreciation R 800
ADDITIONAL INFORMATION AND ADJUSTMENTS
1. The Asset Disposal Account has not been completed. The following entries have been put through already are:
ASSET DISPOSAL N12 2010 Aug 1 Equipment 8 000 2010 Aug 1 Accumulated Depreciation On Equipment 2 600
These entries are in respect of a computer which was sold on 1 August 2010. The depreciation rate on Equipment is 10% p.a. on cost, but the bookkeeper made a mistake in updating the depreciation on this computer. The bookkeeper had depreciated the asset for the entire year instead on 9 months.
You are required to correct this error and then enter the selling price of R7 000 for the sale of the computer on credit to A.Ash.
Learner Note: As you attempt the homework, you need to ensure that you are able to answer the questions in the allocated time frames. If you get stuck, you should refer to either the additional notes or your class teacher. SECTION D: HOMEWORK
GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME ACCOUNTING Grade 11 Session 11 (LEARNER NOTES)
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GENERAL LEDGER OF DANKER STORES BALANCE SHEET ACCOUNTS SECTION
Dr EQUIPMENT B12 Cr 2006 Sep 1 Bank CPJ 200 000 2007 Feb 28 Balance c/d 260 000 Creditors Control CJ 60 000 4720