Property, plant and equipment (PPE)

Property, plant and equipment: to be classified as an asset - not necessary to be the legal owner asset obtained on credit and lease - provided the liability is recorded have an lifespan of more than one year - be used over and over tangible assets – buildings, machinery, vehicles and furniture see and touch become obsolete – written off over expected economic life no longer operate economically – replaced

Property, plant and equipment: Tangible assets: buildings, machinery, vehicles and furniture Intangible assets: IAS 38 (AC 129.2) defines intangible assets as ``... identifiable, non-monetary assets without physical substance held for use in the production or supply of goods or services, … '' Rights eg. copy rights, patents, goodwill Deferred expenses eg. company incorporation costs Financial assets: eg. long term invested bursary funds.

Property, plant and equipment: the cost price of PPE consists of: purchase price, including all expenses incurred installation costs including any other expenses in getting the asset operational cost price - remain constant throughout the life of the asset financing costs on loans raised are not included Determination of the cost price of PPE

Property, plant and equipment: assets are acquired to generate income because income is generated cost can be written off depreciation is allocation of over its useful life method decided on must represent a fair allocation of cost The concept of depreciation

Property, plant and equipment: during expected life a fair amount must be written under double-entry system, another account has to be credited difference between asset account and the accumulated depreciation account is the net carrying amount of the asset Recording depreciation

Property, plant and equipment: Straight line method Cost price is written of over the expected useful life (in years) of the asset. Diminishing balance method In this case a fixed percentage of the carrying amount is written off annually. Production unit method In this case the units produced by the machine are written off annually as a percentage of the units the machine is expected to produce over its total life span. Methods of calculating depreciation

Property, plant and equipment: Bilgredon bought a machine on 1 June 20.0 for R with a discount of R60 000, transport costs of R and installation costs of R Thus the depreciable cost price is? R ( ) The estimated lifespan is 5 years. Bilgredon's financial year ends on 31 May.

Property, plant and equipment: Straight line method – depreciation schedule

Property, plant and equipment: Straight line method

Property, plant and equipment: Straight line method – depreciation schedule

Property, plant and equipment: General ledger Dr Machinery (at CP) Cr 20.1 Jun 1Bank R R Dr Depreciation on Machinery Cr 20.1 May 31Accumulated depr R May 31Profit or loss R Dr Accumulated depreciation: Machinery Cr 20.1 May 31 R20.1 May 31Depreciation R Dr Profit or loss Cr 20.1 May 31Depreciation R 20.1 May 31 R

Property, plant and equipment: GENERAL JOURNAL ENTRIES - FOR THE 5 YEARS The depreciable amount is the cost of the asset less its residual value. The residual value is the expected value (eg scrap value, trade-in value) of the asset at the end of its useful life.

Property, plant and equipment: General ledger Dr Machinery (at CP) Cr 20.1 Jun 1Bank R R Dr Depreciation on Machinery Cr 20.1 May 31Accumulated depr R May 31Profit or loss R Dr Accumulated depreciation: Machinery Cr 20.1 May 31 R20.1 May 31Depreciation R Dr Profit or loss Cr 20.1 May 31Depreciation R May 31 R

Property, plant and equipment: JOURNAL ENTRIES - FOR THE 5 YEARS GENERAL JOURNAL The depreciable amount is the cost of the asset less its residual value. The residual value is the expected value (eg scrap value, trade-in value) of the asset at the end of its useful life.

Note on PPE Property, plant and equipment:

Straight line method – depreciation schedule

Note on PPE Property, plant and equipment:

Statement of Financial Position Only the carrying amount is shown on the face of the statement of financial position. A detailed reconciliation of movements in the carrying amount from the beginning to the end of the financial period is shown in a note.

Diminishing balance method The carrying amount at the end of the fifth year (R ) is deemed to be the disposal (scrap) value of the asset. According to this method the carrying amount will, mathematically, never become nil

Diminishing balance method The carrying amount at the end of the fifth year (R ) is deemed to be the disposal (scrap) value of the asset. According to this method the carrying amount will, mathematically, never become nil.

Property, plant and equipment: Diminishing balance method

Production unit method Production for: year 1 = 500 units, year 2 = 550 units, year 3 = 300 units, year 4 = 200 units and year 5 = 450 units. The total number of units expected to be produced by the machine = units.

Production unit method

Property, plant and equipment: Production volume method

Acquisition of PPE during the year Suppose a machine is purchased six months before the end of the year. The provision for depreciation for the first year must be determined for the portion of the year, which in this case is (6 ÷ 12) or 50%. Example: If the cost price of the machine, bought 6 months before the year end, is R and the depreciation rate is 20% per year, the depreciation to be provided for the first year will be:

Acquisition of PPE during the year Suppose a machine is purchased six months before the end of the year. The provision for depreciation for the first year must be determined for the portion of the year, which in this case is (6 ÷ 12) or 50%. Example: If the cost price of the machine, bought 6 months before the year end, is R and the depreciation rate is 20% per year, the depreciation to be provided for the first year will be:

Depreciation for months in current year End of previous financial year Financial year Date of machine bought Depreciation =(6 ÷ 12) or 50%

Acquisition of PPE during the year Suppose a machine is purchased six months before the end of the year. The provision for depreciation for the first year must be determined for the portion of the year, which in this case is (6 ÷ 12) or 50%. Example: If the cost price of the machine, bought 6 months before the year end, is R and the depreciation rate is 20% per year, the depreciation to be provided for the first year will be:

Acquisition of PPE during the year Suppose a machine is purchased six months before the end of the year. The provision for depreciation for the first year must be determined for the portion of the year, which in this case is (6 ÷ 12) or 50%. Example: If the cost price of the machine, bought 6 months before the year end, is R and the depreciation rate is 20% per year, the depreciation to be provided for the first year will be: R X 20% X 50% = R

Disposal of PPE Scrapping an asset (at the end of the financial year) which has not been written off (depreciated) entirely. Bilgredon bought a machine costing R on 30 November They decided to scrap the machine at the year ended 31 May 20.5 when the accumulated depreciation amounted to R

Disposal of PPE – SG Exercise 12.3, p249 Scrapping an asset (at the end of the financial year) which has not been written off (depreciated) entirely. Bilgredon bought a machine costing R on 30 November They decided to scrap the machine at the year ended 31 May 20.5 when the accumulated depreciation amounted to R

Property, plant and equipment: General ledger Dr Machinery (at CP) Cr 20.0 Nov 30Bank R May 31Realisation of mach R Dr Realisation of machinery Cr 20.5 May 31Machinery at cost R R

Disposal of PPE Profits and losses on disposal of assets must be disclosed separately in the statement of profit or loss and comprehensive income. General journal

Note on PPE

Disposal of PPE – SG Exercise 12.3, p249 Scrapping an asset (at the end of the financial year) which has not been written off (depreciated) entirely. Bilgredon bought a machine costing R on 30 November They decided to scrap the machine at the year ended 31 May 20.5 when the accumulated depreciation amounted to R

Property, plant and equipment: General ledger Dr Accumulated depreciation: Machinery Cr 20.5 May 31Realisation of mach R May May May May May 31 Depreciation R Dr Realisation of machinery Cr 20.5 May 31Machinery at cost R May 31 Accumulated dep R

Disposal of PPE Profits and losses on disposal of assets must be disclosed separately in the statement of profit or loss and other comprehensive income. General journal

Note on PPE

Property, plant and equipment: General ledger Dr Realisation of machinery Cr 20.5 May 31Machinery at cost R May 31Accumulated depr Loss on disposal of machinery R Dr Loss on disposal of machinery Cr 20.5 May 31Realisation of mach R R

Disposal of PPE Profits and losses on disposal of assets must be disclosed separately in the statement of profit or loss and other comprehensive income. General journal

Note on PPE

Trade-in an asset A new machine (ACN) is purchased for R An old machine (CNA), which cost R and on which depreciation amounting to R8 000 has been provided for, is traded in on the new machine. A trade-in value of R2 500 is received and the balance of the purchase price of the new machine is paid in cash. Require: 1. Journal entries 2. Ledger accounts. Property, plant and equipment:

Trade-in an asset A new machine (ACN) is purchased for R An old machine (CNA), which cost R and on which depreciation amounting to R8 000 has been provided for, is traded in on the new machine. A trade-in value of R2 500 is received and the balance of the purchase price of the new machine is paid in cash. Require: 1. Journal entries 2. Ledger accounts. Property, plant and equipment:

Ledger accounts DetailFolRDetailFolR Creditorb/d Dr New Machine ACN Cr DetailFolRDetailFolR New machine ACN Dr Creditor Cr

A new machine (ACN) is purchased for R DetailsDebit R Credit R Machinery Creditor New machine CAN purchased Property, plant and equipment: General Journal

Trade-in an asset A new machine (ACN) is purchased for R An old machine (CNA), which cost R and on which depreciation amounting to R8 000 has been provided for, is traded in on the new machine. A trade-in value of R2 500 is received and the balance of the purchase price of the new machine is paid in cash. Require: 1. Journal entries 2. Ledger accounts. Property, plant and equipment:

Ledger accounts DetailFolRDetailFolR Balanceb/d10 000Machinery realisation Dr Machine CAN Cr DetailFolRDetailFolR Machinery realisation8 000Balanceb/d8 000 Dr Accumulated depreciation: Machine CAN Cr Dr Machinery realisation Cr DetailFolRDetailFolR Machine CAN (cost)10 000Accumulated depreciationb/d8 000 Profit on sale of non- current asset500 Creditor

Property, plant and equipment: DetailsDebit R Credit R Machinery realisation account Machinery account Transfer of original cost price of machine sold to the realisation account Accumulated depreciation: Machinery Machinery realisation account Transfer of accumulated depreciation on machinery sold to the realisation account An old machine (CNA), which cost R and on which depreciation amounting to R8 000 has been provided for, is traded in on the new machine. General Journal

Trade-in an asset A new machine (ACN) is purchased for R An old machine (CNA), which cost R and on which depreciation amounting to R8 000 has been provided for, is traded in on the new machine. A trade-in value of R2 500 is received and the balance of the purchase price of the new machine is paid in cash. Require: 1. Journal entries 2. Ledger accounts. Property, plant and equipment:

Ledger accounts DetailFolRDetailFolR Balanceb/d10 000Machinery realisation Dr Machine CAN Cr DetailFolRDetailFolR Machinery realisation8 000Balanceb/d8 000 Dr Accumulated depreciation: Machine CAN Cr Dr Machinery realisation Cr DetailFolRDetailFolR Machine CAN (cost)10 000Accumulated depreciationb/d8 000 Profit on sale of non- current asset500 Creditor

Property, plant and equipment: DetailsDebit R Credit R Machinery realisation account Machinery account Transfer of orininal cost price of machine sold to the realisation account Accumulated depreciation: Machinery Machinery realisation account Transfer of accumulated depreciation on machinery sold to the realisation account An old machine (CNA), which cost R and on which depreciation amounting to R8 000 has been provided for, is traded in on the new machine. General Journal

Trade-in an asset A new machine (ACN) is purchased for R An old machine (CNA), which cost R and on which depreciation amounting to R8 000 has been provided for, is traded in on the new machine. A trade-in value of R2 500 is received and the balance of the purchase price of the new machine is paid in cash. Require: 1. Journal entries 2. Ledger accounts. Property, plant and equipment:

Ledger accounts DetailFolRDetailFolR Machinery realisation2 500New machine ACN Dr Creditor Cr Dr Machinery realisation Cr DetailFolRDetailFolR Machine CAN (cost)10 000Accumulated depreciationb/d8 000 Profit on sale of non- current asset500 Creditor

Property, plant and equipment: DetailsDebit R Credit R Creditor Bank Settlement of purchase price. (Usually in CPJ) Creditor Machinery realisation account Trading-in of CNA machine Machinery realisation account Profit on trade-in of non-current asset Transfer of profit on trade-in of CNA machine 500 General Journal

Trade-in an asset A new machine (ACN) is purchased for R An old machine (CNA), which cost R and on which depreciation amounting to R8 000 has been provided for, is traded in on the new machine. A trade-in value of R2 500 is received and the balance of the purchase price of the new machine is paid in cash. Require: 1. Journal entries 2. Ledger accounts. Property, plant and equipment:

Ledger accounts DetailFolRDetailFolR Machinery realisation 2 500New Machine ACN Bank Dr Creditor Cr DetailFolRDetailFolR Creditor Dr Bank Cr Dr Machinery realisation Cr DetailFolRDetailFolR Machine CAN (cost)10 000Accumulated depreciationb/d8 000 Profit on sale of non- current asset500 Creditor

Property, plant and equipment: DetailsDebit R Credit R Creditor Bank Settlement of purchase price. (Usually in CPJ) Creditor Machinery realisation account Trading-in of CNA machine Machinery realisation account Profit on trade-in of non-current asset Transfer of profit on trade-in of CNA machine 500 A trade-in value of R2 500 is received and the balance of the purchase price of the new machine is paid in cash. General Journal

Ledger accounts DetailFolRDetailFolR Machinery realisation 500 Dr Profit or loss Cr Dr Machinery realisation Cr DetailFolRDetailFolR Machine CAN (cost)10 000Accumulated depreciationb/d8 000 Profit on sale of non- current asset500 Creditor

Property, plant and equipment: DetailsDebit R Credit R Creditor Bank Settlement of purchase price. (Usually in CPJ) Creditor Machinery realisation account Trading-in of CNA machine Machinery realisation account Profit on trade-in of non-current asset Transfer of profit on trade-in of CNA machine 500 A trade-in value of R2 500 is received and the balance of the purchase price of the new machine is paid in cash. General Journal

Exercise The following information relates to Bacinis: Balances as at 31 August 20.3: R R Plant and machinery (at cost) Accumulated depreciation: Plant and machinery ADDITIONAL INFORMATION (a) According to the assets register, plant and machinery consist of two Zobo machines of equal value. Both the machines were purchased and installed on the same date. (b) Depreciation is written off at 20% per annum by the diminishing balance method. (c) On 31 January 20.4, management decided to increase production capacity and purchased a Jojo machine on credit from Maxi Limited for R One of the Zobo machines was traded in, reducing the owing to Maxi Ltd to R (d) On 1 February 20.4, installation charges on the new machine amounting to R6 000 were paid in cash. Require: 1. Prepare the note regarding property, plant and equipment for the year ended 31 August 20.4 Property, plant and equipment:

Exercise The following information relates to Bacinis: Balances as at 31 August 20.3: R R Plant and machinery (at cost) Accumulated depreciation: Plant and machinery ADDITIONAL INFORMATION (a) According to the assets register, plant and machinery consist of two Zobo machines of equal value. Both the machines were purchased and installed on the same date. (b) Depreciation is written off at 20% per annum by the diminishing balance method. (c) On 31 January 20.4, management decided to increase production capacity and purchased a Jojo machine on credit from Maxi Limited for R One of the Zobo machines was traded in, reducing the owing to Maxi Ltd to R (d) On 1 February 20.4, installation charges on the new machine amounting to R6 000 were paid in cash. Require: 1. Prepare the note regarding property, plant and equipment for the year ended 31 August 20.4 Property, plant and equipment:

BACINIS NOTES FOR THE YEAR ENDED 31 AUGUST 20.4 Property, plant and equipment MachineryTotal RR Carrying amount: Beginning of year Cost Accumulated depreciation(46 600) Additions (R R6 000) Depreciation (R R R11 200)(16 640) Disposals(17 600) Cost(42 500) Accumulated depreciation Carrying amount: End of year Cost (R R – R42 500) Accumulated depreciation (R R – R24 900) (38 340)

Current financial year Fin yr end Begin of fin yr Previous financial years Acc depreciation R46 600/2 = R Aug Jan Aug Aug Aug 20.4 Cost R85 000/2 = R42 500

Exercise The following information relates to Bacinis: Balances as at 31 August 20.3: R R Plant and machinery (at cost) Accumulated depreciation: Plant and machinery ADDITIONAL INFORMATION (a) According to the assets register, plant and machinery consist of two Zobo machines of equal value. Both the machines were purchased and installed on the same date. (b) Depreciation is written off at 20% per annum by the diminishing balance method. (c) On 31 January 20.4, management decided to increase production capacity and purchased a Jojo machine on credit from Maxi Limited for R One of the Zobo machines was traded in, reducing the owing to Maxi Ltd to R (d) On 1 February 20.4, installation charges on the new machine amounting to R6 000 were paid in cash. Require: 1. Prepare the note regarding property, plant and equipment for the year ended 31 August 20.4 Property, plant and equipment:

Current financial year Fin yr end Cost R85 000/2 = R Begin of fin yr Previous financial years Acc depreciation R46 600/2 = R Aug Jan Aug Aug Aug 20.4 Cost R85 000/2 = R42 500

BACINIS NOTES FOR THE YEAR ENDED 31 AUGUST 20.4 Property, plant and equipment MachineryTotal RR Carrying amount: Beginning of year Cost Accumulated depreciation(46 600) Additions (R R6 000) Depreciation (R R R11 200)(16 640) Disposals(17 600) Cost(42 500) Accumulated depreciation (R R1 600) Carrying amount: End of year Cost (R R – R42 500) Accumulated depreciation (R R – R24 900) (38 340)

Current financial year Fin yr end Cost R85 000/2 = R Begin of fin yr Previous financial years Acc depreciation R46 600/2 = R Aug Jan Aug Aug Aug 20.4 Cost R85 000/2 = R Cost R96 000

BACINIS NOTES FOR THE YEAR ENDED 31 AUGUST 20.4 Property, plant and equipment MachineryTotal RR Carrying amount: Beginning of year Cost Accumulated depreciation(46 600) Additions (R R6 000) Depreciation (R R R11 200)(16 640) Disposals(17 600) Cost(42 500) Accumulated depreciation Carrying amount: End of year Cost (R R – R42 500) Accumulated depreciation (R R – R24 900) (38 340)

Exercise The following information relates to Bacinis: Balances as at 31 August 20.3: R R Plant and machinery (at cost) Accumulated depreciation: Plant and machinery ADDITIONAL INFORMATION (a) According to the assets register, plant and machinery consist of two Zobo machines of equal value. Both the machines were purchased and installed on the same date. (b) Depreciation is written off at 20% per annum by the diminishing balance method. (c) On 31 January 20.4, management decided to increase production capacity and purchased a Jojo machine on credit from Maxi Limited for R One of the Zobo machines was traded in, reducing the owing to Maxi Ltd to R (d) On 1 February 20.4, installation charges on the new machine amounting to R6 000 were paid in cash. Require: 1. Prepare the note regarding property, plant and equipment for the year ended 31 August 20.4 Property, plant and equipment:

Current financial year Fin yr end Cost R85 000/2 = R Begin of fin yr Previous financial years Acc depreciation R46 600/2 = R R – R = R x 20% x 5/12 = R Aug Jan Aug Aug Aug 20.4 Cost R85 000/2 = R Cost R96 000

BACINIS NOTES FOR THE YEAR ENDED 31 AUGUST 20.4 Property, plant and equipment MachineryTotal RR Carrying amount: Beginning of year Cost Accumulated depreciation(46 600) Additions (R R6 000) Depreciation (R R R11 200)(16 640) Disposals(17 600) Cost(42 500) Accumulated depreciation (R R1 600) Carrying amount: End of year Cost (R R – R42 500) Accumulated depreciation (R R – R24 900) (38 340)

Exercise The following information relates to Bacinis: Balances as at 31 August 20.3: R R Plant and machinery (at cost) Accumulated depreciation: Plant and machinery ADDITIONAL INFORMATION (a) According to the assets register, plant and machinery consist of two Zobo machines of equal value. Both the machines were purchased and installed on the same date. (b) Depreciation is written off at 20% per annum by the diminishing balance method. (c) On 31 January 20.4, management decided to increase production capacity and purchased a Jojo machine on credit from Maxi Limited for R One of the Zobo machines was traded in, reducing the owing to Maxi Ltd to R (d) On 1 February 20.4, installation charges on the new machine amounting to R6 000 were paid in cash. Require: 1. Prepare the note regarding property, plant and equipment for the year ended 31 August 20.4 Property, plant and equipment:

BACINIS NOTES FOR THE YEAR ENDED 31 AUGUST 20.4 Property, plant and equipment MachineryTotal RR Carrying amount: Beginning of year Cost Accumulated depreciation(46 600) Additions (R R6 000) Depreciation (R R R11 200)(16 640) Disposals(17 600) Cost(42 500) Accumulated depreciation (R R1 600) Carrying amount: End of year Cost (R R – R42 500) Accumulated depreciation (R R – R24 900) (38 340)

Current financial year Fin yr end Cost R85 000/2 = R Begin of fin yr Previous financial years Acc depreciation R46 600/2 = R R – R = R x 20% x 5/12 = R Aug Jan Aug Aug Aug 20.4 Cost R85 000/2 = R R x 20% = R3 840 Cost R96 000

BACINIS NOTES FOR THE YEAR ENDED 31 AUGUST 20.4 Property, plant and equipment MachineryTotal RR Carrying amount: Beginning of year Cost Accumulated depreciation(46 600) Additions (R R6 000) Depreciation (R R R11 200)(16 640) Disposals(17 600) Cost(42 500) Accumulated depreciation Carrying amount: End of year Cost (R R – R42 500) Accumulated depreciation (R R – R24 900) (38 340)

R x 20% x 7/12 = R Current financial year Fin yr end Cost R85 000/2 = R Begin of fin yr Previous financial years Acc depreciation R46 600/2 = R R – R = R x 20% x 5/12 = R Aug Jan Aug Aug Aug 20.4 Cost R85 000/2 = R R x 20% = R3 840 Cost R96 000

BACINIS NOTES FOR THE YEAR ENDED 31 AUGUST 20.4 Property, plant and equipment MachineryTotal RR Carrying amount: Beginning of year Cost Accumulated depreciation(46 600) Additions (R R6 000) Depreciation (R R R11 200)(16 640) Disposals(17 600) Cost(42 500) Accumulated depreciation Carrying amount: End of year Cost (R R – R42 500) Accumulated depreciation (R R – R24 900) (38 340)

BACINIS NOTES FOR THE YEAR ENDED 31 AUGUST 20.4 Property, plant and equipment MachineryTotal RR Carrying amount: Beginning of year Cost Accumulated depreciation(46 600) Additions (R R6 000) Depreciation (R R R11 200)(16 640) Disposals(17 600) Cost(42 500) Accumulated depreciation Carrying amount: End of year Cost (R R – R42 500) Accumulated depreciation (R R – R24 900) (38 340)

BACINIS NOTES FOR THE YEAR ENDED 31 AUGUST 20.4 Property, plant and equipment MachineryTotal RR Carrying amount: Beginning of year Cost Accumulated depreciation(46 600) Additions (R R6 000) Depreciation (R R R11 200)(16 640) Disposals(17 600) Cost(42 500) Accumulated depreciation Carrying amount: End of year Cost (R R – R42 500) Accumulated depreciation (R R – R24 900) (38 340)

BACINIS NOTES FOR THE YEAR ENDED 31 AUGUST 20.4 Property, plant and equipment MachineryTotal RR Carrying amount: Beginning of year Cost Accumulated depreciation(46 600) Additions (R R6 000) Depreciation (R R R11 200)(16 640) Disposals(17 600) Cost(42 500) Accumulated depreciation Carrying amount: End of year Cost (R R – R42 500) Accumulated depreciation (R R – R24 900) (38 340)