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

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

7. Gain on Disposal Example On July 1 st 2008 Celino Inc sells office furniture for $16,000 cash. The furniture originally cost $60,000. As at January 1 st 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 Cash16,000 Accumulated Amortization49,000 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