How to do Asset Disposal step by step.
When assets are disposed:
1. The asset is disposed of at the end of the year.
2. The asset is disposed in the middle of the year.
Assets can be disposed in three ways:
1. Sold for cash.
2. Sold on credit to a debtor.
3. Taken over by a partner. (This one is particularly common in the partnerships section when
doing adjustments for the financial statements.)
Asset disposed at end of year.
Asset disposal can be broken down into 5 steps. To make explanation easier we will work with an
example.
Year ended: 28 February 2020.
A vehicle with a cost price of R300 000 was sold for R40 000 on the 28th of February 2020. Vehicles
are depreciated at 10% per annum (fixed method). Accumulated depreciation on the 1st of March
2019 was R210 000.
This is a lot of information in one sentence so let us break it down into pieces.
Cost price: R300 000
Selling price: R40 000
Accumulated depreciation: R210 000 (this amount is given for the beginning of the financial year
indicating we must calculate the depreciation for the year.)
So let us begin with the calculations.
Step 1: Accumulated depreciation for CURRENT YEAR.
Rate of depreciation is 10%. Since this asset was disposed at the end of the year, we calculate for the
entire year.
300 000 x 10/100 = 30 000 Debit depreciation
Credit Acc. Depr. on vehicles
A common mistake here is that we forget to add this amount to the Depreciation account. This is
extremely important because this asset has been used by the business for the year and it must be
recorded.
Step 2: Recording the cost price of the asset.
Cost price: 300 000 Debit Asset disposal
Credit Vehicles
When assets are disposed:
1. The asset is disposed of at the end of the year.
2. The asset is disposed in the middle of the year.
Assets can be disposed in three ways:
1. Sold for cash.
2. Sold on credit to a debtor.
3. Taken over by a partner. (This one is particularly common in the partnerships section when
doing adjustments for the financial statements.)
Asset disposed at end of year.
Asset disposal can be broken down into 5 steps. To make explanation easier we will work with an
example.
Year ended: 28 February 2020.
A vehicle with a cost price of R300 000 was sold for R40 000 on the 28th of February 2020. Vehicles
are depreciated at 10% per annum (fixed method). Accumulated depreciation on the 1st of March
2019 was R210 000.
This is a lot of information in one sentence so let us break it down into pieces.
Cost price: R300 000
Selling price: R40 000
Accumulated depreciation: R210 000 (this amount is given for the beginning of the financial year
indicating we must calculate the depreciation for the year.)
So let us begin with the calculations.
Step 1: Accumulated depreciation for CURRENT YEAR.
Rate of depreciation is 10%. Since this asset was disposed at the end of the year, we calculate for the
entire year.
300 000 x 10/100 = 30 000 Debit depreciation
Credit Acc. Depr. on vehicles
A common mistake here is that we forget to add this amount to the Depreciation account. This is
extremely important because this asset has been used by the business for the year and it must be
recorded.
Step 2: Recording the cost price of the asset.
Cost price: 300 000 Debit Asset disposal
Credit Vehicles
