PowerPoint Notes: Recording Depreciation and Disposal of Non-Current Assets
Slide 1: Title Slide
Topic: Recording Depreciation of Non-Current Assets and Disposal of Fixed Assets
Sub-Topic: 2.1.1 Disposal of Plant Assets and 2.1.2 Discarding Plant Assets
Course: Accounting and Finance - Level III
Slide 2: Disposal of Plant Assets
Key Points:
Disposal of Plant Assets:
o Plant assets may be discarded, sold, or used towards the purchase of another asset.
o Upon disposal, it is necessary to remove the asset's book value from the accounts.
Slide 3: Discarding Plant Assets
Key Points:
When assets are discarded:
o Happens when plant assets are no longer useful to the business and have no
market value.
o If the asset is fully depreciated, no loss is realized.
Slide 4: Example of Discarding Fully Depreciated Asset
Scenario:
Equipment purchased for Br 6,000 is fully depreciated by December 31.
The asset is discarded on March 24, 2003.
Journal Entry:
March 24, 2003
o Debit: Accumulated Depreciation - Equipment Br 6,000
o Credit: Equipment Br 6,000
Slide 5: When Asset Is Not Fully Depreciated
Key Points:
If the equipment is not fully depreciated, calculate depreciation for the period before
disposal.
There may be a loss on disposal if the asset's book value exceeds its proceeds from
disposal.
Slide 6: Example: Partially Depreciated Asset Disposal
Scenario:
Equipment purchased for Br 6,000 with accumulated depreciation of Br 4,750 (as of Dec
31, 2002).
Straight-line depreciation rate: 10% annually.
Equipment discarded on March 24, 2003.
Steps:
1. Calculate 3-Month Depreciation:
o Depreciation = Br 6,000 x 10% / 12 months x 3 months = Br 150
o Journal Entry:
Debit: Depreciation Expense Br 150
Credit: Accumulated Depreciation Br 150
Slide 7: Disposal of the Partially Depreciated Asset
Journal Entry for Disposal:
Debit: Accumulated Depreciation Br 4,900
Debit: Loss on Disposal of Equipment Br 1,100
Credit: Equipment Br 6,000
Explanation:
The loss on disposal occurs because the accumulated depreciation of Br 4,900 is less than
the equipment's original cost of Br 6,000.
Slide 8: Loss or Gain on Disposal
Key Points:
Loss or Gain on Disposal:
o Recorded as a non-operating activity.
o Reported as other expense (loss) or other income (gain) in the income statement.
Slide 9: Summary
Disposal: When plant assets are sold, discarded, or replaced.
Fully Depreciated Assets: No loss recorded.
Partially Depreciated Assets: Depreciation is recorded for the period, and a loss or gain
on disposal may occur.
Non-Operating Activity: Loss or gain from disposal is reported as other expense or
income
Slide 2: Sale of Plant Assets Overview
Key Points:
The process for selling a plant asset is similar to disposal.
Cash or other assets are received in exchange for the asset.
If the sales price exceeds the book value, a gain is recognized.
If the sales price is less than the book value, a loss is recognized.
Slide 3: Example Setup
Scenario:
Equipment acquired for Br 10,000.
Depreciated at an annual rate of 10% of cost.
The equipment is sold on October 12, in its eighth year of use.
Accumulated Depreciation as of December 31 (previous year): Br 7,000.
Slide 4: Recording Current Year’s Depreciation
Depreciation Calculation:
o Current year’s depreciation for 9 months:
Br 7,000 * 10% * 9/12 = Br 750
Journal Entry to Record Depreciation:
o Oct 12
Debit: Depreciation Expense - Equipment Br 750
Credit: Accumulated Depreciation - Equipment Br 750
Slide 5: Book Value After Current Depreciation
New Book Value:
o Original cost of equipment: Br 10,000
o Accumulated depreciation after 9 months: Br 7,750
o Book Value after depreciation:
Br 10,000 - Br 7,750 = Br 2,250
Slide 6: Assumption 1: Sales at Book Value
Scenario:
Sales Value: Br 2,250 (equal to book value).
Journal Entry:
Oct 12
o Debit: Cash Br 2,250
o Debit: Accumulated Depreciation - Equipment Br 7,750
o Credit: Equipment Br 10,000
Slide 7: Assumption 2: Sales Below Book Value (Loss)
Scenario:
Sales Value: Br 1,000 (below book value).
Journal Entry:
Oct 12
o Debit: Cash Br 1,000
o Debit: Accumulated Depreciation - Equipment Br 7,750
o Debit: Loss on Disposal of Equipment Br 1,250
o Credit: Equipment Br 10,000
Slide 8: Assumption 3: Sales Above Book Value (Gain)
Scenario:
Sales Value: Br 3,000 (above book value).
Journal Entry:
Oct 12
o Debit: Cash Br 3,000
o Debit: Accumulated Depreciation - Equipment Br 7,750
o Credit: Equipment Br 10,000
o Credit: Gain on Disposal of Equipment Br 750
Slide 9: Summary of Sales Scenarios
Sales at Book Value: No gain or loss, just remove the asset and depreciation.
Sales Below Book Value: Loss on Disposal recorded.
Sales Above Book Value: Gain on Disposal recorded
