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10.3 Disposals Property, Plant, and Equipment. 3 Methods of PPE Disposal Retirement –Equipment is scrapped or discarded Sale –Equipment is sold to another.

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Presentation on theme: "10.3 Disposals Property, Plant, and Equipment. 3 Methods of PPE Disposal Retirement –Equipment is scrapped or discarded Sale –Equipment is sold to another."— Presentation transcript:

1 10.3 Disposals Property, Plant, and Equipment

2 3 Methods of PPE Disposal Retirement –Equipment is scrapped or discarded Sale –Equipment is sold to another party Exchange –Existing equipment is traded for new equipment

3 Net Book Value (NBV) Recall: NBV = Asset Cost – Accumulated Amortization Must calculate amortization for partial year to date –Eg. Disposed of equipment on April 1 st (must calculate 3 months of amortization (3/12) for January to March)

4 Retirement Eg. Celino Inc. retires its computer printers, which cost $32,000 on Aug. 8. The accumulated amortization of the printers is $32,000. Aug 8 Accum. Amort – Print. Equip. 32,000 Printing Equip.32,000 Accumulated Amortization is always less than or equal to total cost

5 Loss on Disposal Retirement prior to full amortization (loss is expense) Aug 8 Accum. Amort – Deliv. Equip. 24,000 Loss on Disposal 4,000 Delivery Equip.28,000 Proceeds Net Book Value Gain (Loss) $ 0 -$4,000 = ($4,000) ($28,000 - $24,000) Proceeds Net Book Value Proceeds

6 Sale Proceeds > NBV ** Gain on Disposal CR Proceeds < NBV ** Loss on Disposal DR Proceeds Net Book Value Gain (Loss) Proceeds Net Book Value Proceeds

7 Gain on Disposal Example On July 1 st 2008 Celino Inc sells office furniture for $16,000 cash. The furniture originally cost $60,000. As at January 1 st 2008 it had accumulated amortization of $41,000. Amortization for the first six months of 2008 is $8000. Record the necessary journal entries(s).

8 Gain on Disposal Jul 1 Amortization Expense 8,000 Accumulated Amortization 8,000 to record amortization expense for 2008 * updated Accum. Amort. Bal = $49,000 (Cal: ) Jul 1 Cash16,000 Accumulated Amortization49,000 Office Furniture 60,000 Gain on Disposal 5,000 to record sale of office furniture at a gain

9 Exchange A new asset is typically purchased by trading in an old asset, on which a trade- in allowance is given towards the purchase of the new asset


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