This document discusses the accounting treatment for the disposal of plant and equipment assets. It covers three key points: 1) When plant assets are disposed of, their costs are removed from the asset account and accumulated depreciation is removed from the related account. Gains or losses may result depending on if the disposal price is above or below the asset's book value. 2) If assets are traded in for new ones, the trade-in allowance is compared to book value to determine if a gain or loss on disposal should be recorded. 3) Examples are provided to illustrate accounting entries for scrapping fully depreciated assets, disposing of assets at prices above or below book value, and trading in

1.  Instructor: M Faisal
 Course: Financial Accounting
 Course: Program: BBA/BS(A&F)
 Semester: 3rd/2nd
 Topic: Ch 9: Plant & Intangible Assets (Cont’d)
Course: Financial Accounting
Session: 6

2. Ch 9: Plant & Intangible Assets
1

3. Session
#
Contents Activities
6
Ø Disposal of plant and equipment
Ø Gains and losses on disposal
§ Disposal at a price
above book value
§ Disposal at a price
below book value
Ø Trading in used assets for
new ones
Class activity1: Discussion / Question Answer on learning outcomes
of the pre-reading assignment.
Class activity2: Concepts will be built through lecture & discussion.
Class activity3: Handout’s End of the Chapter practice questions -
Ex9.7, Pr9.4, E9-8 pg 487
Home assignment:
Revise the lecture & problem solved in the class. Read the topic
due for discussion in the next class.
Solve before the next class: (Assignment For
Ch 9: Reporting & Analyzing Long-Lived Assets
Assignment 1.4A
Self-Test Question 5
P9-2A [Available in the slides]

4. Disposal of plant and equipment
 As PAs wear out or become obsolete
  they must be
 scrapped
 sold
 traded in on new equipment
4

5. Disposal of plant and equipment
– Upon disposal of depreciable asset
• Its cost should be removed from the asset account &
• Its acc dep is removed from the related asset account
– E.g. Off Eq purchased 10 yrs ago at a cost of $20,000
has been fully depreciated & is no longer useful
» The entry to record scrapping of the worthless
equ
Acc Dep: Off Eq 20,000
Off Eq 20,000
5

6. 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
6

7. 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. 8

9. 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

10. 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
10

11. 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
11

12. Disposal of plant and equipment
• Scrapping PA
– No price received for a fully depreciated asset i.e.
with BV = 0
• E.g. Off Eq purchased 10 yrs ago at a cost of $20,000 has
been fully depreciated & is no longer useful
– The entry to record scrapping of the worthless equ
Acc Dep: Off Eq 20,000
Off Eq 20,000
12
Pr 9.4 a & b page 404 to done in the class to explaining
the concept practically.

13. Disposal of plant and equipment
• Scrapping PA
– No price received for a plant asset with book
value
• E.g. Office Equipment is scrapped which was purchased
at a cost of $25,000 with an accumulated depreciation
balance of 24,800 at the date of disposal.
– The entry to record scrapping of the Office
Equipment
Acc Dep: Off Eq 24,800
Loss on Disposal 200
Off Eq 25,000
13

14. Disposal of plant and equipment
• Selling – (Disposal) at a price above book value
• E.g. Office Equipment is sold for $400 cash, which was
purchased at a cost of $25,000 with an accumulated
depreciation balance of $24,800 at the date of disposal.
– The entry to record scrapping of the Office
Equipment
Cash 400
Acc Dep: Off Eq 24,800
Gain on Disposal 200
Off Eq 25,000
14

15. Disposal of plant and equipment
• Selling – (Disposal) at a price below book value
• E.g. Office Equipment is sold for $100 cash, which was
purchased at a cost of $25,000 with an accumulated
depreciation balance of $24,800 at the date of disposal.
– The entry to record scrapping of the Office
Equipment
Cash 100
Acc Dep: Off Eq 24,800
Loss on Disposal 100
Off Eq 25,000
15

16. 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
16

17. 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
17

18. 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
18

19. 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
19

20. 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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21. 21
Antarctica

22. 22
Penguins in Antarctica

23. Ex to be done in class
• Ex 9.7 a, b & c

24. 24

25. Questions & Answers