10.3 Disposals - PowerPoint PPT Presentation

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10.3 Disposals

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  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 1st (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 Gain (Loss) • 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 Net Book Value Net Book Value Proceeds Proceeds Proceeds = - - - $ 0 - $4,000 = ($4,000) ($28,000 - $24,000)

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

  7. Gain on Disposal Example • On July 1st 2008 Celino Inc sells office furniture for $16,000 cash. The furniture originally cost $60,000. As at January 1st 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: 41 + 8) Jul 1 Cash 16,000 Accumulated Amortization 49,000 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