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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

Accounting 3

Chapter 21

Section 4


Disposing of plant assets
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.


Sale of a plant asset for book value
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.


Accounting 3

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


Recording a plant asset s depreciation expense for a partial year
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.


Accounting 3
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


Accounting 3

General Journal cash register to be sold, $30.00. Memorandum No. 14.

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


Accounting 3

Step 4 cash register to be sold, $30.00. Memorandum No. 14.

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


Sale of a plant asset for more or less than book value
Sale of a Plant Asset for More or Less than cash register to be sold, $30.00. Memorandum No. 14.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.


Sale of a plant asset for more or less than book value1
Sale of a Plant Asset for More or Less than Book Value cash register to be sold, $30.00. Memorandum No. 14.

  • 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


Accounting 3

Cash Receipts Journal cash register to be sold, $30.00. Memorandum No. 14.

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


Third section 2 of the plant asset record is completed cash register example

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


Work together p 561

Cash Receipts Journal General Ledger Account No: __________

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


Accounting 3

General Journal General Ledger Account No: __________

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


Accounting 3

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


Accounting 3

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


Assignment
Assignment General Ledger Account No: __________

  • Do Application 21-5 by hand.

  • Turn it into Mrs. Middleton.

  • Move on to Section 21-5.