Acc entries

Remove the asset from the books disposal ac to non current assets

Remove acc dep- acc dep to disposal ac

Record the cash proceeds cash to disposal ac

Selling an asset using a part exchange agreement entries

2 Same as above the records the part exchange value non current asset to
disposal ac

Record the remainder non current assets to cash ac

Reducing bal method is more apt when it better reflects the pattern of consumption
of benfite derived

A part of exp can be capitalized if it can be traced to definable streams of future

benefits

what was the carrying amt ?

1. Carrying amt of NA was 2lakh at 1st aug 10 , in aug 11 they sold NA for 25k
on which they made a loss of 5k . dep charge for the year ended 31 st july 11
was 20 k

Ans carrying amt 2lakh

Dep ( 20k )

Cash ( 25k )

Loss ( 5k )

Carrying amt at 31st july 11 150000

Carrying amt of assets disposed off 25k + 5K = 30k

part exchange

2. A bs sells a van on 31st dec03 , which it had bought on 1 st jan01 for 18k &
has depreciated at 25%pa by SLM , bs traded this mach for a new one costing
30k & pays the supplier 27600.

Disposals ac

Van ( cost ) 18k acc depn 13500

 Cash 27600 new van 30000

2100
P & L (loss)

Entry for part exchange NA

To disposals ac

10k 1st april05 , dep slb 20% , aug08 1800 part exchange , year end 31 st dec .
dep is charged full in year of purchase none in year of disposal . replaced in aug08
at a part exchange value of 1800 .

Loss on disposal = 2200 , carrying amt at date of disposal 10k*40/100 = 4k , after

dep has been changed for each of the years ended 31 st dec05 , 06 , 07 .

For the replacement those would be no entry in investing activities . the disposal
value is its part exchange value & not cash received

TYR bought a mach for 5k on 1st jan02 , slb 20% with a full year charge in year of
purchase & none in disposal , a replacement was bought on 18 th dec05 with the old
one traded in as part exchange for old mach 2500 & bal in cash for 6k . 31 st dec05 ?

Non current asset at cost

Cash 5k Bal cd 5k
5k 5k
Bal bd 5k Disposals 5k
PEA 2500
Cash 6k Bal cd 8500
13500 13500
Bal bd 8500

Acc dep

P &l 1k
P&L 1k
P&L 1k
Bal cd 3k
Disposal ac 3k Bal bd 3k
Bal cd 1700 P&L 1700

Disposal ac
Cost 5k Acc dep 3k
Profit 500 PEA 2500

Old dep = 5k * 20% = 1k

New dep = 8500*20% = 1700

Ato purchased a mach for which the list price is 162000 , ato paid 117000 in cash &
traded in an old mach which had a carrying amt of 72k it is atos policy to
depreciate such machines at 10% pa on cost . carrying amt after 1 year ?

162000*90/100 = 145800

Dep ( P & L )to acc dep ( bal sheet )

Dr cr
Cost of NA yes
Cump dep NA yes
Bank yes
Disposal ac yes

NA register

NA register is not a part of double entry but a part of internal control system

NA register of the asset & other info about each individual NA asset

On 1 July 20X7, your non-current asset register showed a net book value of $47,500.
The ledger accounts showed non-current assets at cost of $60,000 and accumulated
depreciation of $15,000. It was discovered that the disposal of an asset for $4,000,
giving rise to a loss on disposal of $1,500, had not been recorded in the non-current
asset register. After correcting this omission, the non-current asset register would
show a balance which was

ans -A $3,000 lower than the ledger accounts ,

explanation
ledger ac

As at 1.1.X7 Cost 60,000

Depreciation 15,000

=45,000

Non-current asset register

At 1.1.X7 Net book value 47,500

Disposal of asset which cost $(4,000 + 1,500) (5,500)

= 42,000

1 NA register showed a carrying amount of $67,460. A non-current asset costing

$15,000 had been sold for $4,000, making a loss on disposal of $1,250. No entries
had been made in the non-current asset register for this disposal. The balance on
the non-current asset register is:

ans The asset was sold for $1,250 less than its carrying amount, thus carrying amt
is $4,000 + $1,250= $5,250. Balance on the register 67,460 - carrying amount of
the disposed asset (5,250) = 62,210

2 An bs NA register shows a carrying amount of $135,600. The NA account in the

nominal ledger shows a carrying amount of $125,600. The difference could be due
to a disposed asset not having been deducted from the non-current asset register:

ans - with disposal proceeds of $15,000 and a profi t on disposal of $5,000. The
difference between the two records is $10,000, therefore the disposed asset must
have had a carrying amount of this amount. B and D are clearly wrong, and C would
produce a carrying amount of $20,000.

3. JKL had NA with a carrying amt of 60k at 31st may08 & 57600 at 31st
may19 , JKL charged dep of 8500 & sold prop which had cost 6k on which acc
dep was 2500. What was the cash paid for prop ?

Bal bf 60k Dep 8500

Cash paid 10600 Disposal ( 6k 4500
2500)
Bal cf 57600

Disposal ac
NA Acc dep
Profit ( P & L ) Bank
Loss ( P & L )

Impairement of inventories due to slow moving items reduce net assets

Payments to payables will not alter the total net assets of a bs

depricaiation

A machine with a book value of 40k was sold for 25k

Purchased a car for 198000 plus sales tax at 17.5% , assuming that sales tax is
irrecoverable . what is the value of car

Ans sales tax is capitalized as it is not recoverable

198000*17.5 % = 34650 , 198000+34650 = 232650

1st july06 50 k , in addition 5k & 3k were spent on installation & a 3 year

warranty . useful life 5 years , residual value 3k . dep is charged on SLB , year end
31st dec . mach was sold on 31st dec09 for 20k

Amt capitalized 55k , dep amt 50k 3k/5 = 5200

31st dec 08

cost of property at 1st jan08

440000
acc dep of prop at 1st jan08
130000
revaluation surplus arising on prop
15k
carrying amt of prop during the year
17k
proceeds from disposal of prop
25k
prop at cost or valuation at 31st dec08
467000
acc dep on prop 31st dec08
138500
dep charge on prop for the year
8500
Cash paid for additions to prop made during the year
Ans-

Cost at 1st jan 08 440000

Acc dep at 1st jan08 13000
Revaluation surplus 8500
Carrying amt of disposal in 17k
the year
Cash paid missing fig 25k
Prop at31st dec08 138500 467000
Acc dep at 31st dec08

Dep ?

SAC is a builder with numerous item of equipment , he calculates dep using the
reducing bal method at 20% . at 31st may03 the equipment had a carrying amt of
11, 475 . during the year ended 30th april04 he purchased equipment at a cost of
4362 & sold equipment with a carrying value of 3257 for 4k

Sacs dep for 30th april04 ?

Ans-

Carrying amt at the beg 11475

Purchases 4362
Disposals at carrying amt ( 3257 )
=12580
Dep at 20% 2516

On 1 June 20X9 a machine was sold which cost $10,000 on 31 July 20X5. Sale
proceeds were $2,750 and the profit on disposal was $750. The depreciation policy
for machinery is straight line with a full year being charged in the year of acquisition
and none in the year of sale. What is the depreciation rate?

20%

The asset has been depreciated for 4 years (X5, X6, X7 and X8).

Sales proceeds 2,750

Profit on disposal (750)

Net book value at disposal 2,000

Cost 10,000

Depreciation to date 8,000

ie $2,000 pa which is 20% of $10,000.

Qus Movement on P & M ac for year ended 31st march07

Cost bd 1st april06 10 k

Additions 2k
Disposals (3k )
Cost cd 31st march07 9k
Acc dep bd 1st april06 2k
Charge for rhe year 1k
Disposals (1500 )
Acc dep cd 31st march 07 1500
Carrying amt bd 1st april 06 8k
Carrying amt cd 31st march7 7500

May Sold offi ce machinery for $800 to A Bell on credit. The machinery had cost
$1,000 and had been depreciated by $400

Acc dep 400

A bell 800

To disposal ac 200

To mach at cost 1k

9 The phrase carrying amount when applied to non-current assets means that
-the assets are shown in the statement of fi nancial position at their cost less
accumulated depreciation.
Profit on sale of mach was 500 . what fig should appear in cash flow of xyz year
ended 31st march07 under investing activities ? purchase of plant 2k & proceeds on
disposal 500

Cost of purchasing a 5 year product license expense no , intangible asset yes ,

mkt research costs expense yes , intangible asset no

1sy may07 bcd had op accrual of 353 for motor expenses . during the year to 30 th
april08 bcd paid invoices for motor expenses of 4728 , bcd also needs to ac for an
accrued of 257 at 30th april08 . p & l for motor expenses ended 30 th april08 ?

Cash paid in year , 4728 . accrual bf 353 + accrual cf 257 = 4632 charge for the
year .

Impairement

4. 30th june03 CEG had a NA which had cost of 25k & acc dep was 15k . info
collected for an impairement review s that date identified that its fair value
was 10200 & costs to sell were 800 . value of in use NA was 9200.
Ans an asset should be stated at lower of carrying amt or recoverable amt,
where recoverable amt is the higher of either value in use or fair value less
costs to sell .
Carrying amt = 10k ( 25 k 15k )
Recoverable amt is higher of either fair value less costs to sell of 9400
( 10,200 800 ) or value in use of 9200 . here recoverable amt is 9400
Finally compare the carrying amt of 10k with the recoverable amt of 9400 , as
recoverable amt is less than carrying amt the asset is impaired by 600 &
should be written down to its recoverable amt of 9400 as follows - debit
impairement change ( p and l ) 600
To acc dep and impairement ( bal sheet )
600

revaluation
5. At 30th june 04 LMN had carrying amt of 15.6 million for property , plant and
equipment , 4.8 million acc dep on buildings . at that date land & buildings
were revalued to 165 million .
 Ans 5.7 , the net carrying value of thhe land and buildings at the date was
10.8 million ( 15.6 m 4.8m ) . the revaluation surplus arising is the diff bw
the revalued amt & the current carrying value i.e. 5.7 million ( 16.5m 10.8
m)

others

6. At 1st jan 06 MDP had motors which cost 15k , on 31 st aug06 . MDP sold a
motor wich had cost 8k . MDP purchased a new motor which cost 10k on 30 th
nov06. Dep 25% SLB on all motors with proportainate charge in year of
purchase & disposal.
Ans -
Cost 15k 8k = 7k , 1st sep , 1st sep to 31st dec06 = 4months

Dep chanrge = 15k * 25% * 8/12 = 2500

7k * 25% * 4/12 = 583
10k *25% * 1/12 = 208 so total dep = 3291
7. Mach at cost1st jan04 90K

Additions 30K

Disposal (20k)

Cost at 31st march dec04 20k

ans - Acc dep at 1st jan04 20K

Depn charge 5k

Disposal (3k)

Acc dep at 31st dec04 22k

Profit on disposal of a mach was 3k

8. An entity made a profit of 4k but its bank bal has fallen by 2500 . this could
be due to
ans - dep of 6k & the purchase of new NA for 12500 -
Profit 4k
Add back dep 6k = 10k ( net cash inflow )
Purchase (12500)
Decrease (2500

9. If dep is not charged , cap will not be maintained-true , by not charging dep it
might appear that profits have risen in line with inflation -true, dep must be
paid annually in arrears false
A non-current asset costing $12,500 was sold at a book loss of $4,500. Depreciation
had been provided using the reducing balance, at 20% per annum since its
purchase. Which of the following correctly describes the sale proceeds and length of
time for which the asset had been owned?

Sale proceeds cannot be calculated

Length of ownership - Cannot be calculated

We would need to know either sale proceeds or length of time in order to calculate
the other.

On 1 June 20X9 a machine was sold which cost $20,000 on 31 July 20X5. Sale
proceeds were $5,500 and the profit on disposal was $1,500. The depreciation
policy for machinery is straight line with a full year being charged in the year of
acquisition and none in the year of sale. What is the depreciation rate?

The assets has been depreciated for 4 years (X5, X6, X7 and X8).

Sales proceeds 5,500

Profit on disposal 1,500

Net book value at disposal 4,000

Cost 20,000

Depreciation to date 16,000

ie $4,000 pa which is 20% of $20,000.

A company has recorded its freehold property at its historical cost of $100,000. It
now decides to record it at its market value of $280,000, by making which entries?
Ans Debit non-current assets 180,000 Credit revaluation reserve 180,000