GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME

ACCOUNTING Grade 11 Session 11 (LEARNER NOTES)

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ASSET DISPOSAL

Learner Note: This is a continuation of the previous lesson on asset disposal


Question 1: 40 Marks 25 Minutes (ADAPTED FROM OWN QUESTION BANK)


REQUIRED:
Use the information provided to prepare the following ledger accounts:

Vehicles
Accumulated depreciation on vehicles
Asset disposal

The following balances were extracted from the books of Mobility Traders:

2010 2009
Vehicles 294 000 196 000
Accumulated depreciation vehicles 46 400 88 000

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

Balance b/d 46 400 Feb 28
Depreciation (18
600+ 12 400 + 3
000)
GJ 34 000

122 000
122 000


Mar
2010
1
Balance b/d 46 400

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)

Fixed Asset account
Balance B/d xxx Asset disposal (b) GJ xxx
Bank/Debtors/Creditors(a) xxx Balance C/d xxx
xxx xxx
Balance B/d xxx

(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

260 000 260 000
2007
Mar
1 Balance b/d 260 000 2007
Sep
1 ASSET
2007
Sep
1 Bank CPJ 100 000 DISPOSAL GJ 60 000
2008
Feb
28 Balance c/d 300 0 00
360 000 360 000
2008
Mar
1 Balance b/d 300 000



Dr ACCUMULATED DEPRECIATION ON EUIPMENT B13 Cr
2007
Sep
1 Asset 2007
Feb
28 Depreciation GJ 26 000
Disposal GJ 11 400 2007
Sep
1 Depreciation GJ 5 400
Balance c/d 66 000 2008
Feb
28 Depreciation GJ 46 000
77 400 77 400
2008
Feb
1 Balance b/d 66 000




HINTS
R60 000X20%x6/12 = R6 000 and R200 000x20%x6/12 = R20 000 Total R26 000
R60 000 R6 000 =R54 000X20%X6/12 = R5 400
New R100 000X20%X6/12 = R10 000 and
Old R200 000 R20 000 = R180 000X20%X12/12= R36 000 Total R46 000
SECTION E: SOLUTIONS TO SESSION 10 HOMEWORK
GAUTENG DEPARTMENT OF EDUCATION SENIOR SECONDARY INTERVENTION PROGRAMME
ACCOUNTING Grade 11 Session 11 (LEARNER NOTES)

The SSIP is supported by

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ANSWER
2.1 R60 000 R11 400 = R48 600 R48 600

2.2 Carrying Value R48 600
Loss R 1 600
Sold for R47 000 R47 000

2.3 R5 400 + R46 000 = R51 400 R51 400

2.4 R300 000 R66 000 = R234 000 R234 000