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Accounting 3

Accounting 3. Chapter 21 Section 4. Disposing of Plant Assets. A plant asset may no longer be useful to a business for a number of reasons. When this occurs, the asset must be disposed. The old plant asset may be sold, traded, or discarded.

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Accounting 3

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  1. Accounting 3 Chapter 21 Section 4

  2. Disposing of Plant Assets • A plant asset may no longer be useful to a business for a number of reasons. When this occurs, the asset must be disposed. • The old plant asset may be sold, traded, or discarded. • When the disposal takes place, a journal entry is recorded to: • Remove the original cost of the plant asset and its related accumulated expenses. • Recognize any cash or other asset received for the old plant asset. • Recognize any gain or loss on the disposal.

  3. Sale of a Plant Asset for Book Value • Three accounts are affected in this type of transaction: Accumulated Depreciation-(type of plant asset), the type of plant asset account, and cash. • First you will debit Accumulated Depreciation-(type of plant asset) for the amount of depreciation accumulated (this can be found on the plant asset record). This “takes out” the depreciation from this account. • Second, on the same line you will enter the amount of cash received in the cash debit column. • Third, you will credit the type of plant asset account for the original cost of the asset (found on the plant asset record). This “takes out” the cost of the plant asset from the total type of plant asset account it is in. • Example transaction and visual steps on next slide.

  4. Cash Receipts Journal Page ___ Doc No. Post Ref. GENERAL Sales Tax Payable Date Account Title Accts Rec. Credit Sales Credit Sales Dis. Debit Cash Debit DEBIT CREDIT Debit Credit January 5, 2006. Received cash from sale of display case, $250.00: original cost, $1,250.00; total accumulated depreciation through December 31, 2005, $1,000.00. Receipt No. 4. 1 Acc. Depr.-St. Eq. R4 1,000.00 250.00 Jan 5 Store Equipment 1,250.00

  5. Recording a Plant Asset’s Depreciation Expense for a Partial Year • A plant asset may be sold at any time during the asset’s useful life. When it is sold, its depreciation from the beginning of the fiscal year to the date of disposal is recorded. • There are four steps to this type of transaction: • Determine the monthly depreciation expense. • Determine the partial year’s depreciation expense. • Journalize the transaction in the General Journal. • Update Section 3 of that asset’s plant asset record. • Example transaction, calculations, and visual steps on next few slides.

  6. April 1, 2007. Recorded a partial year’s depreciation on cash register to be sold, $30.00. Memorandum No. 14. • How we arrived at $30.00: • If we look at the cash register’s plant asset record from previous sections we can determine its annual depreciation is $120.00. • Step 1:(ADE)$120.00 /(MIY)12 = (MDE)$10.00 • Step 2:(MDE)$10.00 x (NMU)3 = (PYDE)$30.00

  7. General Journal Page ___ Doc. No. Post Ref. Date Account Title Debit Credit Step 3 4 Apr 1 Depreciation Exp.-Store Equip M14 3 0 00 Acc. Dep.-Store Equipment 3 0 00

  8. Step 4 Plant Asset Record No : ________ General Ledger Account No: __________ Description: ________________________ General Ledger Account: ___________________ Date Bought: _____________ Serial Number: __________________ Original Cost: _____________ Est. Useful Life: __________ Est. Salvage Value: _________ Depreciation Method: ___________ Disposed of: Discarded _________ Sold __________ Traded __________ Date: _________________ Disposal Amount: ____________________ Year Annual Depreciation Expense Accumulated Depreciation Ending Book Value Cash Register 2005 $120.00 $450.00 $250.00 2006 $120.00 $570.00 $130.00 2007 $30.00 $600.00 $100.00

  9. Sale of a Plant Asset for More or Less than Book Value • Gain on Plant Asset - When a plant asset is sold for more than book value. This account has a normal credit balance. • Loss on Plant Asset – When a plant asset is sold for less than book value. This account has a normal debit balance. • The gain or loss on a plant asset is found by subtracting the book value from the cash received.

  10. Sale of a Plant Asset for More or Less than Book Value • Winning Edge is selling a cash register for $125.00. After a partial year’s depreciation is recorded, a journal entry is made to record the sale of the register. • First the gain or loss is calculated: • Cash received: $125.00 Less: Ending Book Value $100.00 Gain: $25.00

  11. Cash Receipts Journal Page ___ Doc No. Post Ref. GENERAL Sales Tax Payable Date Account Title Accts Rec. Credit Sales Credit Sales Dis. Debit Cash Debit DEBIT CREDIT Debit Credit Second, the transaction is journalized in the cash receipts journal: April 1, 2007. Received cash from sale of a cash register, $125.00: original cost, $700.00; accumulated depreciation through April 1, 2007, $600.00. Receipt No. 39. 10 Apr 1 Acc Dep-St. Eq. R39 600.00 125.00 Store Equip 700.00 Gain on PA 25.00 Below is what the journalizing would look like if there is a loss on plant asset.Sept. 1, 2007. Received cash from sale of a computer, $500.00: original cost, $2000.00; total accumulated depreciation through Sept 1, $1300.00. Receipt No. 281. Sep 1 Acc. Dep.-Off. Equip. R281 1300.00 500.00 Loss on Plant Asset 200.00 Office Equipment 2000.00

  12. Plant Asset Record No : ________ General Ledger Account No: __________ Description: ________________________ General Ledger Account: ___________________ Date Bought: _____________ Serial Number: __________________ Original Cost: _____________ Est. Useful Life: __________ Est. Salvage Value: _________ Depreciation Method: ___________ Cash Register Disposed of: Discarded _________ Sold __________ Traded __________ Date: _________________ Disposal Amount: ____________________ Year Annual Depreciation Expense Accumulated Depreciation Ending Book Value 2005 $120.00 $450.00 $250.00 2006 $120.00 $570.00 $130.00 2007 $30.00 $600.00 $100.00 Third, Section 2 of the plant asset record is completed. (cash register example) April 1, 2007 $125.00

  13. Cash Receipts Journal Page ___ Doc No. Post Ref. GENERAL Sales Tax Payable Date Account Title Accts Rec. Credit Sales Credit Sales Dis. Debit Cash Debit DEBIT CREDIT Debit Credit Work Together p.561 3 Jan 3 Acc. Dep.-St. Eq. R3 600.00 100.00 Store Equip. 700.00 Jun 30 Acc. Dep.-Off. Eq. R45 370.00 400.00 Loss on Plant Asset 150.00 Office Equipment 920.00

  14. General Journal Page ___ Doc. No. Post Ref. Date Account Title Debit Credit 3 Jun 30 Depr. Exp.-Office Equipment M25 6 0 00 Acc. Depr.-Office Equipment 6 0 00

  15. Plant Asset Record No : ________ General Ledger Account No: __________ Description: ________________________ General Ledger Account: ___________________ Date Bought: _____________ Serial Number: __________________ Original Cost: _____________ Est. Useful Life: __________ Est. Salvage Value: _________ Depreciation Method: ___________ Disposed of: Discarded _________ Sold __________ Traded __________ Date: _________________ Disposal Amount: ____________________ 134 1215 Television Store Equipment January 4, 2001 15SG152 $700.00 Year Annual Depreciation Expense Accumulated Depreciation Ending Book Value 3 years $100.00 Straight-Line 2001 $200.00 $200.00 $500.00 2002 $200.00 $400.00 $300.00 2003 $200.00 $600.00 $100.00 January 3, 2004 $100.00

  16. Plant Asset Record No : ________ General Ledger Account No: __________ Description: ________________________ General Ledger Account: ___________________ Date Bought: _____________ Serial Number: __________________ Original Cost: _____________ Est. Useful Life: __________ Est. Salvage Value: _________ Depreciation Method: ___________ 1205 135 Office Desk Office Equipment May 27, 2001 GE572N $920.00 Disposed of: Discarded _________ Sold __________ Traded __________ Date: _________________ Disposal Amount: ____________________ 6 years $200.00 Straight Line Year Annual Depreciation Expense Accumulated Depreciation Ending Book Value 2001 $70.00 $70.00 $850.00 2002 $120.00 $190.00 $730.00 2003 $120.00 $310.00 $610.00 June 30, 2004 $400.00 2004 $60.00 $370.00 $550.00 Assignment Next Slide

  17. Assignment • Do Application 21-5 by hand. • Turn it into Mrs. Middleton. • Move on to Section 21-5.

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