ASSET DISPOSAL

TUT EXAMPLE 1
[REQUIRED]
 TUT EXAMPLE 1
[SOLUTION]

1. C
2. A
3. D
4. B
5. G
6. E
ASSET
 ASSET
An asset is an item of property owned by a business.
A present economic resource controlled ( direct its use) by a business (an
entity) due to a past event.
 TUT EXAMPLE 2
[REQUIRED]

Scenario
Company A purchased an asset for R260 000. Company A
expects to use the vehicle for 5 years, after which it will be
sold for R60 000.
The company expects to generate the same benefits every
year.
Determine the following:
• Cost
• Estimated useful life
• Depreciable Amount
• Residual Value
• Depreciation method
• What percentage of the depreciable amount is depreciated
annually?
TUT EXAMPLE 2
[REQUIRED]

Scenario
Company A purchased an asset for R260 000. Company A
expects to use the vehicle for 5 years, after which it will be
sold for R60 000.
The company expects to generate the same benefits every
year.
Determine the following:
• Cost – R260 000
• Estimated useful life – 5 years
• Depreciable Amount – R200 000 [260 000 – 60 000]
• Residual Value – R60 000
• Depreciation method – Straight line method
• Percentage depreciated annually – 20% [100 / 5]
CONCEPT TEST 8
SHOWROOM BUILDING
Cost – R200 000 (TOTAL BENEFITS)
TOTAL BENEFITS : R210 000
- using (depreciable amount): R210 000
- selling (residual value) : R0
• COST OF PPE
Total costs incurred to bring PPE to place and condition for USE as
intended by management.
 CONCEPT TEST 8
Determine the following:
• Cost
• Residual Value
• Proceeds from sale
• Depreciable Amount
• Estimated useful life
• Depreciation for the year (up until the date of disposal)
• Accumulated depreciation at the date of sale
• Carrying value of the showroom
 CONCEPT TEST 8
Determine the following:
• Cost
• Residual Value
• Proceeds from sale
• Depreciable Amount
• Estimated useful life
• Depreciation for the year (up until the date of disposal)
• Accumulated depreciation at the date of sale
• Carrying value of the showroom
• Profit/Loss on sale of asset
CONCEPT TEST 8 [CALCULATIONS]
 ASSET PURCHASED:
JOURNAL ENTRIES
Recognise the PPE purchased on 1 April 2013
- Recognise the purchase price
- Recognise the transfer duties paid
Transfer Duty is a tax levied on the value of any property acquired by any person by way of a transaction or in
any other way.

REMEMBER:
• Cost of PPE refers to the total cost incurred by the business to bring PPE to place and condition for USE as
intended by management. In order for the business to be able to use the PPE (showroom building) the
business needs to buy the PPE and pay for transfer duties.

• These costs will be CAPITALISED (i.e added to the relevant PPE account)
 ASSET PURCHASED:
JOURNAL ENTRIES

Recognising the PPE

Dr PPE Buildings (A) 210 000
Cr Bank (A) 210 000
Purchase of a showroom building and capitalisation of transfer duties.
 ASSET DISPOSAL:
JOURNAL ENTRIES
Step 1: Derecognise the cost of PPE
Step 2: Record proceeds from sale of PPE
Step 3: Record the depreciation for the year until the date of disposal
Step 4: Derecognise accumulated depreciation
Step 5: Record the profit/loss on sale
 ASSET DISPOSAL:
JOURNAL ENTRIES
Step 1: Derecognise the cost of PPE
We need to derecognise the PPE: Building because we SOLD the PPE.
When we sell PPE we open a temporary account called ASSET
DISPOSAL. So you will credit PPE: Building and you debit

Dr Asset Disposal (P/L) 210 000

Cr PPE: Building (A) 210 000
 ASSET DISPOSAL:
JOURNAL ENTRIES
Step 2: Record proceeds from sale of PPE
We sold the PPE: Building for R240 000. R240 000 represents our
proceeds (i.e cash received when PPE was sold / selling price). Bank
account increased. We will debit bank and credit asset disposal.

Dr Bank (A) 240 000

Cr Asset Disposal (P/L) 240 000
 ASSET DISPOSAL:
JOURNAL ENTRIES
Step 3: Record the depreciation for the year until the date of disposal
When an asset is sold we recognise depreciation up until the date of
disposal.

Dr Depreciation (P/L) 10 500

Cr Accumulated depreciation (-A) 10 500
 ASSET DISPOSAL:
JOURNAL ENTRIES
Step 4: Derecognise accumulated depreciation
Accumulated depreciation includes depreciation for the current year
until the date of disposal.

Dr Accumulated depreciation (-A) 21 000

Cr Asset Disposal (P/L) 21 000
 ASSET DISPOSAL:
JOURNAL ENTRIES
Step 5: Record the profit/loss on sale

Dr Profit on sale (
Cr Asset disposal (P/L)
ASSET DISPOSAL: T-ACCOUNT