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Fixed Assets Grade 12 Notes Accounting Study Guides pdf free

A fixed asset is a long-term tangible property or piece of equipment that a company owns and uses in its operations to generate income. These assets are not expected to be sold or used within a year and are sometimes recorded on the balance sheet as property, plant, and equipment (PP&E). Fixed Assets Grade 12 Notes Accounting Study Guides

Fixed Assets Grade 12 Notes Accounting Study Guides pdf free

8.1 Introduction to Fixed assets

  • All fixed assets purchased by a business are not intended for resale but to be used in the operation of the business to assist in generating a profit.
  • Fixed assets are recorded at the price the asset was purchased called COST PRICE (GAAP principle, called Historical cost.)
  • Separate records are kept for every fixed asset purchased in an asset register. Full details of very asset is recorded on the asset register and the depreciation for the financial year is calculated and recorded in the asset register and kept up to date at all times.
  • Fixed assets are depreciated at cost price/ straight line method or at carrying value/ diminishing balance/ or called book value method.
  • For internal control purposes, the assets and the registers are regularly monitored.
  • When the asset is sold the asset register is updated; additional depreciation calculated, to whom it was sold and closed off as the asset does not belong to the business anymore.
  • At the end of each financial year all the relevant fixed assets are depreciated. Any depreciation on assets sold during the year, form part of the depreciation amount disclosed in the Income Statement.

8.2 Asset register

Required:
Complete the following asset registers.
Information:
Example
Vehicle purchased: Cost price R80 000
Equipment: Cost price: R20 000
Transaction:

  1. Depreciation on vehicles must be brought into account at 20% per annum on cost price.
  2. Depreciation on equipment must be calculated at 10% per annum on carrying value.

A. DEPRECIATION AT COST PRICE:

Schie Traders No.1
Asset registerGeneral ledger account: Vehicle account (B 6)
Item: TOYOTA delivery van 3 litre Date purchased: 1 March 2009
From whom purchased: Toyota Whiteriver Cost price: R80 000
Percentage Depreciation: 20 % p.a. at cost price/straight line method
Details of depreciation
Details  Annual depreciation calculations Accumulated depreciation Book value or known as “Carrying value” 
End of first year
End of second year
End of third year
End of fourth year
End of fifth year

Cost price – accumulated depreciation = book value/CARRYING VALUE
Fixed assets can only be depreciated till the fixed asset reach the scrap value of R1, therefore the CARRYING VALUE of the fixed asset cannot be less than R1.

Schie Traders No.2
Asset registerGeneral ledger account: Equipment account (B 7)
Item: Office computer Date purchased:
From whom purchased: DARRYN FURNITURES Cost price: R20 000
Percentage Depreciation: 10% p.a. at carrying value/book value or called
diminishing value
Details of depreciation
Details  Annual depreciation calculations Accumulated depreciation Book value or known as “Carrying value” 
End of first year
End of second year
End of third year
End of fourth year
End of fifth year

8.3 Residual value/or called scrap value of R1

Introduction
At the end of each financial year the asset register will be updated by calculating depreciation on all fixed assets. The total depreciation will then be recorded in the General Journal as the depreciation for the year. Depreciation is a legal way of decreasing the net profit so that less tax can be paid. However when the fixed asset reaches the end of its lifespan no more depreciation can be calculated. Depreciation can only be calculated till the asset reaches a carrying value of R1.
(Cost price minus Accumulated depreciation = carrying value)

  1. The R1 scrap value applies when an asset is depreciated. A Vehicle with a carrying value of RI cannot be depreciated the following year. (cost price minus accumulated depreciation = carrying value R100 000 – R 99 999 = R1
    DR VEHICLE ACCOUNT CR
    Balance b/d 100 000
    DR ACCUMULATED DEPRECIATION CR
    Balance b/d 99 999
  2. When an asset is sold that has a carrying value of R1, the cost price and the total accumulated depreciation of the vehicle sold will be closed off to the Asset disposal account.
    ASSET DISPOSAL  
    Vehicle
    Profit on sale of asset
    100 000
    39 999
    (Because of the scrap value of R1, the profit is R39 999)
    139 999
    Accum. depreciation
    Bank
    99 999
    40 000
    139 999
  3. However when an asset is sold that has not reached its carrying value of R1 yet but will soon, the scrap value principle (carrying value of R1) is not applied in practice.
    (In practice the scrap value principle is NOT applied when a fixed asset is sold that has not reached its R1 carrying value yet.)

Example
Vehicle is sold for R40 000 cash.
Cost price of vehicle: R100 000
Accumulated depreciation: R 90 000
Carrying value = R 10 000
Depreciation is calculated at 20% on Cost price

  • Additional depreciation: 100 000 × 20% = R20 000
  • The carrying value is already R10 000 and that means that depreciation can only be R10 000.
  • A fixed asset cannot be depreciated less than the cost price of the vehicle. (And not R9 999!)
ASSET DISPOSAL    
Vehicle
Profit on sale of asset
100 000
40 000
(Because the principle of R1 is not applied, the profit is R40 000)
140 000
Accum. depreciation
Bank
100 000
40 000
140 000

8.4 Note to the Balance Sheet and Asset disposal

  1. Know the format and the steps to follow when an asset is sold.
  2. Know all the ledger accounts involved in calculating the
    • Additional depreciation when an asset is sold;
    • Depreciation of all the existing fixed assets at the end of the financial year (except Land and buildings).
    • Completion of Note 3 in the Balance sheet

Note 3 to the Balance sheet:

3. Property , plant and equipmentLand and buildingsVehiclesEquipmentTotal
Cost Price60 000
– Accumulated Depreciation(20 000)
= Carrying value on the last day of the previous year40 000
Movements:
+ Additions at cost price30 000
– Disposals at carrying value (book value)(5 000)
– Depreciation for the year(15 000)
= Carrying value on the last day of current year50 000
Cost Price85 000
– Accumulated Depreciation at end of year(35 000)
= Carrying value on the last day of current year50 000

Steps to follow when disposing a fixed asset:

  1. Find the cost price of fixed asset sold and move/transfer it to the Asset Disposal account.
  2. Calculate any additional depreciation on fixed asset sold
  3. Move/Transfer the total depreciation on fixed asset sold to Asset Disposal account.
  4. Record the selling price of fixed asset sold in the Asset Disposal account.
  5. Calculate the profit or the loss on sale of fixed asset sold.
  6. At end of year, record the depreciation of the remaining fixed assets and new assets at the end of financial year.

General Ledger accounts

  • Study the following General Ledger accounts.
  • Ensure that you understand all the ledger accounts well.
  • The entries are examples of all possible transactions in the applicable general ledger accounts when fixed assets are bought or sold.
  • The procedure at the end of the financial year is also illustrated.

There are different formats of Note 3; however they have the same entries. Make sure that you use the format of one of the approved text books.

General Ledger of Star Traders

DR                                            VEHICLES (FA )                                        B1 CR
2013
Mar
 1 BalanceB/d180 0002013
Dec
31Asset disposalGJ100 000
May 10Creditors control CJ150 0002014
Feb
28Balancec/d280 000
Oct 10Bank CPJ50 000
380 000380 000
2014
Mar
 1 B/dB/d 280 000

 

DR                                  ACCUMULATED DEPRECIATION ON VEHICLES (-A)                               B2 CR 
2013
Dec
 31Asset Disposal (20000 + 5000) GJ25 0002013
Mar
 1BalanceB/d60 000
Balance C/d40 000Dec 31Depreciation (additional)GJ5 000
65 000B/d65 000
2014
Feb
 28Balance C/d50 000Balance (Accu. Depreciation. of
the remaining vehicles)
GJ40 000
2014
Feb
 28Depreciation (end of year)GJ
Mar 1Balanceb/d

 

DR                                           ASSET DISPOSAL (calculation)                                               B3 CR   
2013
Dec
31Vehicles GJ100 0002013
Dec
31 Accumulated depreciation on
vehicles
GJ25 000
Profit on sale of asset GJ5 000Debtors controlGJ80 000
105 000105 000

NOTE: Debtors control – when a vehicle was sold on credit
Bank – when a vehicle was sold for cash
Creditors control – when a vehicle was traded in to a secondhand dealer
Drawings – When owner took asset for own purposes
Donation – When a vehicle was donated.
Asset Disposal account must be closed off. (The Asset Disposal account will never have a balance because the difference will either be a profit on sale of asset or a loss on sale of asset)

DR                                                                DEPRECIATION (e)                                     N                   CR 
2013
Dec
31Accumulated depreciation on
vehicles (additional)
GJ5 0002014
Feb
 28Profit and loss (depreciation for
the whole year)
GJ35 000
2014
Feb
28Accumulated depreciation on
vehicles (end of year)
 GJ10 000
Accumulated depreciation on
equipment
 GJ 20 000
35 00035 000

 

DR                                PROFIT ON SALE OF ASSET (i)                        N CR        
2013
Dec
 31Profit and loss accountGJ5 0002014
Feb
28Asset disposalGJ5 000

OR

DR                                LOSS ON SALE OF ASSET (e)              N CR        
2013
Dec
 31Asset disposal GJ 02014
Dec
 31Profit and loss accountGJ0

Example 2 on note 3 in the Financial Statements
REQUIRED:
Complete Note 3 of the Balance sheet
INFORMATION:
Make use of the format and complete Note 3 from the financial Statements.
Name of Company _________________________________
BALANCE SHEET AT ________________________________

Notes
ASSETS
Non-current assets
Property, plant and equipment

NOTES TO THE BALANCE SHEET

3. Property, plant and equipment  Vehicles 
Cost Price
Accumulated Depreciation
Carrying value on the last day of the previous year
Movements:
Additions at cost
Disposals at carrying value (book value)
Depreciation for the year
Carrying value on the last day of current year
Cost Price
Accumulated Depreciation
Carrying value on the last day of current year

Memorandum of example 1
Calculation of Depreciation and cost price and carrying value

SCHIE TRADERS NO.1
Asset registerPercentage Depreciation: 20 % p.a. at cost price/straight line method
Details of depreciation
DetailsAnnual depreciation CalculationsAccumulated depreciationBook value or known as “Carrying value”
End of first year80 000 × 20%= 16 00016 00064 000
(80 000 – 16 000)
End of second year80 000 × 20%= 16 00032 000(80 000 – 32 000) 48 000
End of third year80 000 × 20%= 16 00048 00032 000
End of fourth year80 000 × 20%= 16 00064 00016 000
End of fifth year80 000 × 20%= 16 000
15 999
(Cannot depreciate R16 000, because of the scrap value of R1. Therefore can only depreciate R15 999)
(64 000 + 15 999)
79 999
(80 000 – 79 999)
R1

 

SCHIE TRADERS NO.2
Asset registerPercentage Depreciation: 10 % p.a. at carrying value/ book value or
called diminishing value
Details of depreciation
DetailsAnnual depreciation CalculationsAccumulated depreciationBook value or known as “Carrying value”
Cost price R20 000 End of first year20 000 × 10% × 6/12
= 1 000
1 00019 000
End of second year19 000 × 10% = 1 900(2 000 + 1 900)
2 900
(20 000 – 2 900)
17 100
End of third year17 100 × 10% = 1 7104 61015 390
End of fourth year15 390 × 10% = 1 5396 14913 851
End of fifth year13 851 × 10% –
1 385, 10
7 534,1012 465,90

Memorandum of example 2
REQUIRED:
Complete the note to the financial statements by using the given ledger accounts
Name of Company _________________________________
BALANCE SHEET AT ________________________________

Notes
ASSETS
Non-current assets230 000
Property, plant and equipment (at carrying value)230 000

NOTES TO THE BALANCE SHEET

3. Property, plant and equipmentVehicles
Cost Price180 000
Accumulated Depreciation(60 000)
Carrying value on the last day of the previous year120 000
Movements:
Additions at cost (150 000 + 50 000)200 000
Disposals at carrying value (100 000 – 25000)(75 000)
 Depreciation for the year (5 000 + 10 000)(15 000)
Carrying value on the last day of current year230 000
Cost Price280 000
Accumulated Depreciation(50 000)
Carrying value on the last day of current year230 000

 

SCHEMATIC ILLUSTRATION OF FIXED ASSETS IN A BUSINESS        
ASSET REGISTERS    GENERAL LEDGER ACCOUNTS    BALANCE SHEET
DEPRECIATION AT COST PRICE    VEHICLES    ASSETS
ASSET REGISTER OF VEHICLE SOLD     Balance b/d100 000Asset disposal GJ30 000Non-Current Assets
Cost price: R30 000 Depreciation: 20% at Cost priceCreditors con CJ50 000Balance c/d120 000Fixed assets at CV76 120
DateDepreciationAccu DeprCV150 000150 000NOTES TO THE BALANCE SHEET
28 Feb’1030 000 × 20% × 8/12 = 4000 4 00026 000Balance b/d120 000Note 3: FIXED ASSETSVehiclesEquipmentTotal
28 Feb’1130 000 × 20% × 12/12
= 6000
10 00020 000ACCUMULATED DEPRECIATION ON VEHICLE (-A)Cost price100 00010 000110 000
1 Sept’1130 000 × 20% × 6/12 =
3000
13 00017 000Asset disposal13 000Balance b/d40 000–Accumulated depreciation(40 000)(3 600)43 600
ASSET REGISTER OF REMAINING VEHICLE(10 000 + 3 000)Depreciation3 000= Carrying value at begin60 0006 40066 400
Cost price: R70 000 Accumulated depreciation:R30 000Balance c/d49 000Depreciation19 000Movements
(14000+5000)+ Additions at Cost price50 00050 000
DateDepreciationAccu DeprCV62 00062 000– Disposals at carrying value(17 000)(17 000)
28 Feb’1270 000 × 20% × 12/12 = 1400044 00026 000Balance b/d49 000– Depreciation 2 + 6(22 000)(1 280)(23 280)
= Carrying value at end71 0005 12076 120
ASSET REGISTER OF REMAINING NEW VEHICLE     ASSET DISPOSAL    Cost price at end120 00010 000130 000
Cost price: R50 000 bought 6 months agoVehicle GJ30 000Accum. depre13 000– Accumulated depreciation(49 000)(4 880)(53 880)
DateDepreciationAccu DeprCVProfit sale of asset1 000Bank18 000= Carrying value at end71 0005 12076 120
28 Feb’1250 000 × 20% × 6/12 = 5 0005 00045 00031 00031 000
Know the steps to dispose of a fixed asset well:
DEPRECIATION AT CARRYING VALUEDEPRECIATION Step 1Transfer the cost price to Asset disposal
Accum depre: V3 000Profit and loss23 280 Step 2Calculate additional depreciation
ASSET REGISTER OF COMPUTER/EQUIPMENTAccum depre: V19 000 Step 3Transfer total depreciation to Asset disposal
Cost price: R10 000 depreciation: 20% on CVAccum depre: Eq1 280 Step 4Record the selling price in Asset disposal
DateDepreciationAccu DeprCV23 28023 280aCashBank
28 Feb’1010 000 × 20% × 12/12
= 2000
2 0008 000On CreditDebtors control
28 Feb’118 000 × 20% × 12/12 = 16003 6006 400PROFIT ON SALE OF ASSET   Trade inCreditors Control
28 Feb’126 400 × 20% × 12/12 = 12804 8805 120Profit and loss1 000Asset disposal1 000By ownerDrawings
DonatedDonation
PROFIT AND LOSS ACCOUNT (F2) N     Step 5Calculate the profit or loss on sale of asset
Depreciation26 280Trading accountxxxxAT THE END OF THE YEAR:   
Profit on sale1 000Step 6Calculate the depreciation of all old remaining and the new fixed assets

 

 

 

 

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