What does disposal of a non-current asset include?
Both a cash sale and a trade-in of the asset.
What is involved in recording disposal of a non-current asset?
Transferring carrying value, recording proceeds, and transferring profit or loss.
What is carrying value of a non-current asset?
The amount recorded after accumulated depreciation used to measure disposal.
How is profit or loss on disposal calculated?
Proceeds on disposal minus the carrying value of the asset.
What accounts must be removed when an asset is disposed of?
Both the asset account and its accumulated depreciation account.
Which account is debited for the full amount in a cash sale?
Bank is debited for the full amount received.
Which account is credited for GST in a cash sale?
GST Clearing is credited for the GST.
Which account is credited for proceeds excluding GST in a cash sale?
Disposal of the asset is credited for the proceeds excluding GST.
How much is Bank debited in the cash-sale example?
Bank is debited $1,100.
What amount is credited to Disposal of Equipment in the cash-sale example?
Disposal of Equipment is credited $1,000.
What amount is credited to GST Clearing in the cash-sale example?
GST Clearing is credited $100.
What does the Disposal of Equipment account record as a debit?
It records the asset’s Carrying value as a debit.
How is cash from selling a non-current asset reported in the Cash Flow Statement?
As an Investing activities cash inflow called Cash received from sale of equipment.
When does a loss on disposal of a non-current asset occur?
When proceeds on disposal are less than the asset’s carrying value.
What does a debit balance in the Disposal of Non-current asset account indicate?
A loss on disposal because carrying value exceeds proceeds on disposal.
How is a Disposal of Equipment account with a $2,000 debit balance closed?
Disposal of Equipment is credited $2,000 and Loss on Disposal of Equipment is debited $2,000.
To which account is Loss on Disposal of Equipment closed?
The Profit and Loss Summary account.
How is Loss on Disposal of Equipment reported in the Income Statement?
As an Other expense.
What is the loss on disposal if equipment has a carrying value of $3,000 and proceeds of $1,000?
$2,000 loss on disposal.
When does a profit on disposal of a non-current asset occur?
When proceeds on disposal exceed the asset's carrying value.
What does a credit balance in Disposal of Non-current asset account indicate?
A profit on disposal because proceeds exceed carrying value.
How is a Disposal of Furniture account with $300 credit balance closed?
By debiting Disposal of Furniture $300 and crediting Profit on Disposal of Furniture $300.
Where is Profit on Disposal of Furniture closed and reported?
Closed to Profit and Loss Summary and reported as Other revenue in Income Statement.
What is the profit on disposal if furniture's carrying value is $2,000 and proceeds are $2,300?
$300 profit on disposal.
What is under-depreciation in asset accounting?
Insufficient depreciation expense allocated over an asset's life causing Carrying value overstatement.
How can under-depreciation lead to a loss?
Because Carrying value exceeds resale value and disposal proceeds.
What causes under-depreciation related to asset estimates?
Overstated Residual value or Useful life.
What are examples causing overstated Residual value or Useful life?
Asset damage, technological obsolescence, or low demand.
What is over-depreciation in asset accounting?
Excess depreciation expense allocated causing Carrying value understatement.
How can over-depreciation lead to a profit?
Because Carrying value is below resale value and disposal proceeds.
What causes over-depreciation related to asset estimates?
Understated Residual value or Useful life.
What are examples causing understated Residual value or Useful life?
Asset remains in good condition or is in high demand.
What is a trade-in in non-current asset disposal?
Proceeds reducing the amount payable for a new non-current asset.
How is disposal of a traded-in asset recorded?
By crediting the old asset, debiting accumulated depreciation, and using the Disposal account.
Where are trade-in proceeds credited in accounting?
To the Disposal account.
Which account is debited for the new asset in a trade-in?
The new non-current asset account.
Is GST recorded on trade-in proceeds?
No, GST is not recorded on trade-in proceeds.
Why is a trade-in not reported in the Cash Flow Statement?
Because it does not create a cash flow.
What loss results from trading in a van with $1,200 carrying value for $700?
A $500 loss on disposal.
At what cost is the new van recorded after trade-in?
At its historical cost of $30,000.
Pon a prueba tus conocimientos con 21 preguntas sobre Disposal of Non-Current Assets.
1. In accounting for the disposal of a non-current asset, is disposal limited to receiving cash, or can it include a trade-in as well?
2. Which set of actions best describes the accounting treatment for disposing of a non-current asset?
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