Course: Financial Accounting

Session: 6

 Instructor: M Faisal
 Course: Financial Accounting
 Program: BBA
 Semester: 2
 Topic: Ch 9: Plant & Intangible Assets (Cont’d)
Ch 9: Plant & Intangible Assets

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 Disposal of plant and equipment

 As PAs wear out or become obsolete

  they must be
 scrapped
 sold
 traded in on new equipment

4
Disposal of plant and equipment

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 Disposal of plant and equipment

 For Fully Depreciated Asset still in use

 No more depr should be recorded on it
 Even though the property may in good condition & is
still in use
 Under no condition can total dep exp > the amount paid
for the asset

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 Disposal of plant and equipment

 For fully depreciated asset

 which remains in use beyond the original estimate
of UL
 Asset A/c & its Acc Dep A/c should remain in the
accounting records
 without further entries until the asset is retired

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8
 Disposal of plant and equipment

 When depreciable assets are disposed of at

any date other than the end of the yr
 Deprecation should be recorded for the fraction of
the yr ending with the disposal date
 If HYC is in use, 6 months’ dep should be recorded on all
assets disposed of during the yr
 If NWM is in use, dep should be recorded on all assets
disposed of during the yr till the date of disposal.

9
 Disposal of plant and equipment

 Gains and losses on disposals of plant and

equipment
 Disposal at a price above book value
 Gain on disposal should be recorded
 Disposal at a price below book value
 Loss on disposal should be recorded

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 Disposal of plant and equipment

 RV & EUL of PAs are only estimates

 Disposal price of PAs can be > or < BV
 Disposal Price > BV  Gain
 Disposal Price < BV  Loss
 If G or L r material in amount
 They should be shown separately in the i/s in computing
the income from operations

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 Disposal of plant and equipment

Pr
Pr 9.4
9.4 aa &
& bb page
page 404
404 to
to done
done in
in the
the class
class to
to explaining
explaining
the
the concept
concept practically.
practically.

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Disposal of plant and equipment

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Disposal of plant and equipment

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Disposal of plant and equipment

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 Disposal of plant and equipment

 Selling a plant asset

 Total price = Cash + N/R

 Compute Gain or Loss

 by comparing the book values of both the asset with
total price (Cash + N/R)

 Then record the sales

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 Disposal of plant and equipment

 Trading in [exchange] used assets for new

ones
 Trade-in allowance [TIA]= price of the old asset
being exchanged
 Find out Gain or Loss
 by comparing TIA with BV at the time of sales

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 Disposal of plant and equipment

 Consider you are buying a new assets with a price

of 15k
 The entry will be
Truck 15,000
Cash 15,000

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 Disposal of plant and equipment

 Now lets suppose you have an old truck & you want
the dealer of the truck to buy it from you while you are
purchasing a new truck from him.
Cost of the old truck = 10,000
Less: Acc Deprecation = 8,000
-----------
Book Value = 2,000
 The TIA for this old truck granted by the dealer,
 let suppose TIA= 3,500

TIA(Disposal Price) = 3,500

Less: Book Value = 2,000
-----------
Gain on Trade-In = 1,500

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 Disposal of plant and equipment

 The entry will change to

Truck (New) 15,000
Accumulated Dep: Truck (Old) 8,000
Truck (Old) 10,000
Gain on Trade-in 1,500
Cash 11,500

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Antarctica

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Penguins in Antarctica

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Ex
Ex to
to be
be done
done inin class
class
•• Ex
Ex 9.7
9.7 a,
a, bb &
& cc page
page 401
401
24
Class Activity3
 P9-2A pg 490
(a)
April 1 Land 2,200,000
Cash 2,200,000

May 1 Depr Exp 20,000

Acc Depr—Eq 20,000
($600,000 X 1/10 X 4/12)
 P9-2A pg 490
(a)……Continued
May 1 Acc Depr—Eq 440,000
Cash 170,000
Equipment600,000
Gain on Disposal of PA10,000

Cost……………………….$600,000
Acc depr.—Eq………….. (440,000)
[($600,000 X 1/10) X 7 + $20,000)]
Book value……………… 160,000
Cash proceeds……………170,000
Gain on disposal…………$ 10,000
 P9-2A pg 490
(a)……Continued
Jun 1 Cash 1,600,000
Land 1,000,000
Gain on Disposal of PA 600,000

July 1 Equipment 1,100,000

Cash 1,100,000
 P9-2A pg 490
(a)……Continued
Dec. 31 Depr Exp……………….. 70,000
Acc Depr—Eq 70,000
($700,000 X 1/10)

31 Acc Depr—Eq 700,000

Eq 700,000

Cost $700,000
Acc depr.—Equ (700,000)
 ($700,000 X 1/10 X 10)
Book value $ 0
 P9-2A pg 490
(b)
Dec. 31 Depr Exp 662,500
Acc Depr—Buildings 662,500
($26,500,000 X 1/40)
31 Depr Exp 3,925,000
Acc Depr—Eq 3,925,000
$38,700,000* X 1/10 $3,870,000
$ 1,100,000 X 1/10 X 6/12 55,000
$3,925,000
*($40,000,000 – $600,000 – $700,000)
 P9-2A pg 490
(c)
RIVERA CORPORATION
Partial Balance Sheet
December 31, 2013

Plant Assets*
Land $ 4,200,000
Buildings $26,500,000
Less: Acc
depr—buildings 12,587,500 13,912,500
Equipment 39,800,000
Less: Acc
depr—eq 7,875,000 31,925,000
Total plant assets $50,037,500
*See T-accounts which follow.
P9-2A pg 490
P9-2A pg 490
Questions & Answers