Accounting for Plant Assets and Depreciation

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Presentation transcript:

Accounting for Plant Assets and Depreciation Chapter 18, Section 4 Disposing of Plant Assets

Depreciation Review What information is needed to calculate depreciation expense? Original Cost Estimated Salvage Value Estimated Years of Useful Life How do you calculate annual depreciation? (Original Cost – Salvage Value) ÷ Years of Useful Life How do you calculate monthly depreciation? Annual Depreciation ÷ 12 = Monthly Depreciation When would you need to know the monthly depreciation amount? When the asset is purchased or sold after January 15.

Disposing of a Plant Asset When an asset is no longer useful to the business (obsolete or worn out), it is disposed of. May be sold, traded, or discarded. If disposed of after January 15, additional depreciation expense must be recorded for that year. Count how many months the asset was used then multiply by monthly depreciation rate. Record in Section 3 of Plant Asset Record Record in General Journal using Memo No.

Recording a Plant Asset's Depreciation Expense for a Partial Year April 4, 20X7. Recorded a partial year’s depreciation on a safe to be sold, $60.00. Memorandum No. 31. 1 2 3 1. Debit the depreciation expense account. 2. Credit the accumulated depreciation account. 3. Update Section 3 of the plant asset record.

Disposing of a Plant Asset (cont.) Determine Ending Book Value Journal entry to record disposal must do the following: Remove original cost from the equipment account Remove accumulated depreciation from the Accumulated Depreciation account Recognize any cash received Recognize a gain or loss on the disposal (based on ending book value)

Sale of a Plant Asset for Book Value Lesson 21-4 Sale of a Plant Asset for Book Value January 6, 20X6. Received cash from sale of display case, $250.00: original cost, $3,250.00; total accumulated depreciation through December 31, 20X5, $3,000.00. Receipt No. 4. 1 2 1. Record an entry in the cash receipts journal to remove the original cost. 2. Check the type of disposal, and write the date, and disposal amount in Section 2 of the plant asset record.

Sale of a Plant Asset for More than Book Value April 4, 20X7. Received cash from sale of safe, $425.00: original cost, $1,800.00; accumulated depreciation through April 4, 20X7, $1,500.00. Receipt No. 47. 1 1. Remove the original cost. Record the gain on the sale. Record the cash received from the sale. 2 2. Check the type of disposal. Write the date and disposal amount in Section 2 of the plant asset record.

Sale of a Plant Asset for Less than Book Value October 6, 20X7. Received cash from sale of a computer, $150.00: original cost, $1,900.00; total accumulated depreciation through October 1, 20X7, $1,500.00. Receipt No. 281. 1 2 1. Remove the original cost. Record the loss on the sale. Record the cash received from the sale. 2. Check the type of disposal and write the date and disposal amount in Section 2.

PROBLEMS Work Together 18-4 (text pg. 550) On Your Own 18-4 (text pg. 550) Application Problem 18-5 (text pg. 557)