Measurement of non-current assets.

p. 289-291

NB: Cost of an item

Example 12.1
P 295 - 297
• Costs incurred on Property, Plant and Equipment (PPE) after acquisition
p 295

• Writing off of property, plant and equipment

 Depreciation
Depreciable amount
Useful life
Residual value
Carrying amount
Accounting methods for determining amount
of depreciation for PPE. P 297-301
• Straight line method & example 12.5

• Diminishing balance method /reducing balance method) &

example 12.6
Derecognition of PPE p. 306-313
• Scrapping of PPE –examples 12.11 & 12.12

• Selling of PPE – examples 12.3 & 12.14

• Trading in of PPE – example 12.15

 Selling of Property, Plant and Equipment.
A separate account in which we can make all the entries should be opened - ASSET DISPOSAL a/c. Particularly if you have
more than one item of that particular asset, otherwise you could get confused over which entries relate to which item.
SALE OF ASSETS AT THE BEGINNING OF THE YEAR :
Transfer Cost Price to Asset Disposal
DR Asset Disposal CR (Eg). Vehicles

Transfer Accumulated Depreciation to Asset Disposal a/c.

DR Accumulated depreciation on Vehicles CR Asset Disposal

Sale of the asset [Cash/credit; Trade-in; Donate; Personal use].

DR Bank/Receivables CR Asset Disposal - (cash/credit)
DR Payables CR Asset Disposal - (Trade-in)
DR Donations CR Asset Disposal - Given as a donation
DR Drawings CR Asset Disposal - Taken by owner for personal use.

Calculate profit or loss on sale of asset.

DR Profit or loss (loss on sale of asset) CR Asset Disposal
DR Asset Disposal CR Profit or loss (profit on sale of asset).
Example:
The following information was taken from the records of
CAN Traders on the 1 January 20.19, the beginning of the
accounting period. The financial year ends on the 31
December 20.19. CAN Traders is not registered for VAT.
Explanation:
All information pertaining to this specific vehicle will be removed from the
records of the entity. All transactions regarding the disposal of the asset will be
shown in the Asset disposal account. The cost of the vehicle is removed from
the collective Vehicle account by means of a general journal entry.
DR Asset disposal (SPL) 75 000

20.19 CR Vehicles (SFP) 75 000

Jan 1 A vehicle with a cost price of R75 000 was sold for
R50 000 cash. The Accumulated depreciation relating to this vehicle is removed from the
Accumulated depreciation on vehicles account.
The Accumulated depreciation on the vehicle (from date of
purchase up until 1 Jan 20.19) amounted to R30 000. DR Accumulated depreciation on vehicles (SFP) 30 000
CR Asset disposal (SPL) 30 000

Asset Disposal Cash received for the selling of the Vehicle. (recorded in the CRJ)
DR Bank (SFP) 50 000
20.19 20.1 CR Asset disposal (SPL) 50 000
Jan 1 Vehicles 75 000 9 1 Acc Dep on 30 000
Jan Vehicles The carrying amount of the Vehicle: Cost - Acc dep on Vehicles
(Cost R75 000 - Acc dep on Vehicles R30 000)
Profit on sale 5 000 Bank 50 000
of asset = R45 000
The selling price is R5 000 more than the carrying amount. It is necessary to
record the R5 000 in order that the ledger account (Asset disposal) is closed off.
80 000 80 000 Remember you do not own the vehicle anymore so there must be no entries
relating to this vehicle in the records of the business.
DR Asset disposal (SPL) 5 000
CR Profit on sale of asset (SPL) 5 000
Sale of an asset at the end or during the year.
Motor Vehicles

20.15 Balance 100 000 20.15 Asset disposal 40 000

Example: On the 1 July 20.15 Mboni decides to sell the Toyota for R12 000 Jan 1 July 1
cash.
Accumulated depreciation on Motor Vehicles
20.15 Asset disposal 27 000 20.15 Balance 51 000
Fixed Asset Register July 1 (24 000 + 3 000) Jan 1
Asset Mazda Date of Purchase: 1 January 20.12 July 1 Depreciation 3 000
Depreciation rate: 15% p.a. on cost
Cost Price R60 000
Date Depreciation Acc depreciation Carrying Amount Asset Disposal
31 Dec 20.12 R9 000 R9 000 R51 000 20.15 20.15 Accumulated
July 1 Motor Vehicles 40 000 July 1 depreciation on 27 000
31 Dec 20.13 R9 000 R18 000 R42 000 Motor Vehicles
Bank 12 000
31 Dec 20.14 R9 000 R27 000 R33 000
Profit or Loss a/c 1 000

40 000 40 000
Asset Toyota Date of Purchase: 1 January 20.11
Depreciation rate: 15% p.a. on cost
Cost Price R40 000
Date Depreciation Acc depreciation Carrying Amount Depreciation
20.15 Accumulated
31 Dec 20.11 R6 000 R6 000 R34 000 July 1 depreciation on 3 000
Motor Vehicles
31 Dec 20.12 R6 000 R12 000 R28 000
Profit or Loss
31 Dec 20.13 R6 000 R18 000 R22 000
20.15 Asset disposal 1 000
31 Dec 20.14 R6 000 R24 000 R16 000 July 1 (Loss on sale of
asset)
Explanation: General Journal of Mboni Distributors 1 July 20.15

Details DR CR

The Toyota was sold on the 1 July 20.15, six months into the current Depreciation 3 000
financial year. On date of sale the prorata depreciation should be
recognised. The annual depreciation amounts to R6 000. For the 6
months that this vehicle was used: R6 000 x ½ = R3 000. Acc dep on motor vehicles 3 000

As previously explained an Asset disposal account will show all the Asset Disposal 40 000
transactions relating to the Toyota. Remember, because we are
selling this vehicle all data pertaining to the asset sold should be
removed. The transfer to asset disposal will be at cost. Motor vehicle 40 000

Transferring the accumulated depreciation up to date of sale to Acc dep on motor vehicles 27 000
Asset disposal account will include the accumulated depreciation of
the asset being sold up until the beginning of the year + the prorata Asset disposal 27 000
depreciation for the current year.

The selling of the vehicle for R12 000 cash. Please refer to slide 1 Bank 12 000
for other options regarding the selling of the asset.
Asset disposal 12 000

The difference between the selling price and the carrying amount of Loss on sale of asset 1 000
the vehicle would reflect the profit made or loss suffered by the
disposal of the asset. R40 000 – R27 000 = R13 000 – R12 000 Asset disposal 1 000
Because the selling price is R1 000 less than the carrying amount,
a loss was suffered (closing off the Asset disposal account).