1. Fixed Assets:
Asset disposal

2. Fixed Assets
Fixed assets are resources owned and controlled by the entity.
Also known as tangible assets are assets expected to last longer than 12 months
Fixed assets are used to either render services, create inventory or to aid with business activities.
Examples of fixed assets: Land and Buildings, vehicles and office equipment

3. Fixed Assets (cont..)
During the financial year assets lose their value due to use and are depreciated.
Depreciation lessens the carrying value of the asset, not the price it was purchased for.
Fixed assets aren’t sold during normal business activities, but can be sold.
This type of sale is called Asset Disposal

4. Assets can be disposed of by
1.Cash
3. Trade-in
2. Credit
4. Donations/Scrap

5. 5 Steps of asset disposal
Transfer the cost of the fixed asset to the asset disposal account
Calculate and depreciate the asset to date of sale.
Transfer total accumulated depreciation on asset to asset disposal
Record the proceeds(no proceeds in case of donation/scrap)
Calculate the profit or loss on sale of asset

6. Example 1
Park of Fun owns a bumper car arena. The arena and its 10 cars were purchased for R , 3 years ago and it depreciated R per year. In the middle of the 4th year it was sold for: (a) R cash
(b) R on credit
Record the sale of the asset in general ledger accounts at 30 June 2y10

7. Example 1: Answer: Journal entries
Step
Description
Debit
Credit
1. Transfer the cost
Dr Asset Disposal
Cr Equipment: Bumper Car Arena R
2. Depreciate asset
Dr Depreciation: Bumper Car Arena
Cr Accumulated Depreciation
R 5 000
3. Transfer depreciation
Dr Accumulated Depreciation: Bumper Car
Cr Asset disposal
R35 000
4. Record proceeds
Dr Bank
Cr Asset Disposal
R72 000
5.Calculate profit or loss
Dr Profit & Loss (profit)
R 7000
R 7 000

8. Example 1(a): Answer(cont..): Asset disposal account
Date
Description
Amount
30 Jun 10
Equipment: Bumper car arena
Accumulated Depreciation
35 000
Bank
70 000
Profit & Loss account
5 000

9. Example 1(b) credit: Answer: Journal entries
Step
Description
Debit
Credit
1. Transfer the cost
Dr Asset Disposal
Cr Equipment: Bumper Car Arena R
2. Depreciate asset
Dr Depreciation: Bumper Car Arena
Cr Accumulated Depreciation
R 5 000
3. Transfer depreciation
Dr Accumulated Depreciation: Bumper Car
Cr Asset disposal
R35 000
4. Record proceeds
Dr Debtors Control
Cr Asset Disposal
R72 000
5.Calculate profit or loss
Dr Profit & Loss (profit)
R 7000
R 7 000

10. Example 1(b) credit: Answer(cont..): Asset disposal account
Date
Description
Amount
30 Jun 10
Equipment: Bumper car arena
Accumulated Depreciation
35 000
Debtors Control
70 000
Profit & Loss account
5 000

11. Example 2
Park of Fun also owns their own 20 seater shuttle minibus. The minibus was bought for R80 000, 5 years ago. The vehicle is depreciated R every year. In the 8th month of the 6th year Park of fun traded in the old minibus for a newer model costing R and paid R cash.
Show the journal entries for the sale and purchase on 31 August x10

12. Example 2: Answer: Journal entries
Step
Description
Debit
Credit
1. Transfer the cost
Dr Asset Disposal
Cr Vehicle: MiniBus
R80 000
2. Depreciate asset
Dr Depreciation: old MiniBus
Cr Accumulated Depreciation
R 8 000
3. Transfer depreciation
Dr Accumulated Depreciation: Bumper Car
Cr Asset disposal
R68 000
4. Purchase new vehicle and Record proceeds
Dr Vehicle: new minibus
Cr Bank
Cr Asset Disposal
R90 000
R10 000
5.Calculate profit or loss
Cr Profit & Loss (loss)
R 2000
R2000

13. Example 2: Answer: Asset disposal account
Date
Description
Amount
31 Aug 10
Vehicles: minibus
80 000
Accumulated Depreciation
68 000
Bank
Vehicles: new minibus
10 000
Profit & Loss account
2 000

14. Example 2: Answer: Vehicles account
Date
Description
Amount
1 Jan 10
Balance
80 000
31 Aug 10
Asset disposal
Bank
90 000
Asset Disposal
10 000
1 Jan 11