DISPOSAL OF NON-CURRENT ASSETS

Transaction Debit Credit

1. Removal of asset
(cost price) sold
2. Removal of
depreciation
3. Proceeds on disposal
4. Profit on disposal
5. Loss on disposal
Disposals account Asset account
Provision for depreciation Disposal account
Cash book Disposal account
Disposals account Income statement
Income statement Disposals account

Question 1
The following non-current assets transactions took place during the period 1 March 2008 to 28 February
2012:
01 March 2008 Machine A purchased for $18 000
01 April 2009 Machine B purchased for $20 000
01 May 2011 Machine C purchased for $22 000
30 June 2011 Machine A was sold for $7 500
Notes
 Machines are depreciated at 25% per annum using the straight line method.
 In the year of purchase a full year of depreciation is charged.
 In the year of disposal no depreciation is to be provided.
Requirement
a) Draw up the machines at cost account for the period ended 28 February 2012
b) Draw up the provision for machine depreciation account for the period ended 28 February 2012
c) Draw up the machine disposals account
d) Explain briefly the principal reason for maintaining a provision for depreciation account

Question 2
Grid Ltd maintains its non-current assets at cost. Provision for depreciation accounts, for each type of
asset are in use. Machinery is to be depreciated at a rate of 12½ % per annum, using the reducing
balance method. Depreciation is to be calculated on assets in existence at the end of the year, giving full
year’s depreciation even though the asset was bought part of the way through the year. The following
transactions in assets took place:

2005 01 January Bought machinery $6 400, fixtures $1 000

01 July Bought fixtures $2 000
2006 01 October Bought machinery $7 200
01 December Bought fixtures $500

The financial year end of the business is 31 December.

Requirement
a) Machinery account
b) Fixtures account
c) The two separate provision for depreciation accounts

1 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

 d) The non-current assets section of the SFP at the end of each year, for the years ended 31
December 2005 and 2006

Question 3
CB Ltd depreciates its plant at the rate of 20% per annum, straight line method, for each month of
ownership. From the following details draw up the plant account and the provision for depreciation
account for each of the years 2010, 2011, 2012 and 2013.

2010 Bought plant costing $9 000 on 1 January

Bought plant costing $6 000 on 1 October
2012 Bought plant costing $5 500 on 1 July
2013 Sold plant which had been bought for $9 000 on 1 January 2010 for the sum of $2 750
On 30 September 2013

You are also required to draw up the plant disposal account and the extracts from the SFP as at the end
of each year.

Question 4
A company maintains its non-current assets at cost. Depreciation accounts, for each asset are kept.
At 31 December 2010 the position was as follows:

Total cost to date Total depreciation to date

Machinery 52 590 25 670
Furniture 28 600 14 900

The following additions were made during the financial year ended 31 December 2011:
Machinery $24 800, Furniture $3 200.
Some old machines bought in 2007 for $28 000 were sold for $8 000 during the year.
The rates of depreciation are:
Machinery 10%, Furniture 5%, using straight line basis, calculated on the assets in existence at the end
of each financial year irrespective of date of purchase.
Requirement
a) Assets account
b) Depreciation accounts
c) SFP extract

Question 5
Parker’s car has the following details;

Cost $17 000

Estimated residual value $ 2 000
Estimated useful life 5 years

Calculate the accumulated depreciation and book value for Parker’s car after 3 years using:
a) Straight-line method [5]
b) Sum of year digits ignoring salvage value [5]
c) If Parker decides to switch to the reducing balance method from the straight-line method using
20% for year 4, what would be the book value for Parker’s car at the end of year 4 [5]

2 Compiled by T T Herbert (0773 038 651 / 0712 560 772)

Question 6
A company maintains its fixed assets at cost. Depreciation provision accounts, one for each type of
asset, are in use. Machinery is to be depreciated at the rate of 12½% per annum, and fixtures at the rate
of 10% per annum, using the reducing balance method. Depreciation is to be calculated on assets in
existence at the end of each year, giving a full year’s depreciation even though the asset was bought
part way through the year. The following transactions in assets took place:

2013 January 1 Bought machinery $640 000, Fixtures $100 000

2013 July 1 Bought fixtures $200 000
2014 October1 Bought machinery $720 000
2014 December 1 Bought fixtures $50 000

The financial year end of the business is 31 December.

You are required to show:

a) The machinery account [4]
b) The fixtures account [4]
c) The two separate provision for depreciation accounts [9]
d) Statement of financial position extract as at 31 December 2013 and 2014 [8]
[Adapted from ICMZ Fin Acc 1 Oct 2008]

Question 7
Sparks Ltd purchased a new machine on 1 January 2012 for $240 000. It is expected to be used for 5
years and then have a scrap value of $16 000.
Required
For each of the years 2012, 2013 and 2014, calculate, for Sparks Ltd, the amount to be charged to the
SCI, in respect of depreciation on the new machine, using each of the following methods:

(i) Straight line

(ii) Reducing balance
(iii) Sum of the year digits

3 Compiled by T T Herbert (0773 038 651 / 0712 560 772)