CURRICULUM FET
ACCOUNTING
TERM 1
TOPIC: FIXED ASSETS – LEARNER BOOK
DATE: 22 FEBRUARY 2024
SUPPORT PROGRAMME FOR
GRADE 11 LEARNERS
1
DEPRECIATION AND ASSET DISPOSAL
Terminology
Term
Depreciation
Definition / Description
The decrease in the value of a fixed asset.
Depreciation is an imputed expense, because part of the cost is
allocated to a specific accounting period.
Accumulated depreciation
The total depreciation of the asset over time
Book value (carrying value)
The original cost price minus the depreciation that accumulated
over the period in which the asset has been in the business. (CP –
Acc dep = CV)
Residual value
The full amount of an asset cannot be written off as long as it is in
the as it is in the business’s possession.
The carrying value is kept at R1.
Cost price method
Also called fixed-instalment method or straight-line method.
Depreciation is calculated using the cost price of the asset.
Also called carrying value / book value method.
Depreciation is calculated using the carrying value of the asset.
Diminishing balance method
Lifespan
The period of time that the business is expected to depreciate the
asset. The lifespan of an asset, for example, a computer is five years.
DEPRECIATION – Cost price method
Example: ABC Traders bought a vehicle for R350 000 on 1 March 2023 and entered a vehicle
finance agreement with ABSA Bank. The vehicle is depreciated at 20% on the cost price. The
financial year end on 28 February each year.
Date
28 Feb 2024
28 Feb 2025
28 Feb 2026
28 Feb 2027
28 Feb 2028
Calculation
Depreciation Accumulated
depreciation
70 000
70 000
70 000
140 000
70 000
210 000
70 000
280 000
69 999
349 999
350 000 x 20% =
350 000 x 20% =
350 000 x 20% =
350 000 x 20% =
70 000 - 1
Carrying
value
280 000
210 000
140 000
70 000
1
Depreciation will be R70 000 every year for 4 years and in the 5th year the depreciation will be
69 999 because the asset cannot have no value in the books. The residual value of R1 will
remain in the books until the asset is sold.
2
DEPRECIATION – Diminishing balance method
Example: ABC Traders bought a vehicle for R350 000 on 1 March 2023 and entered a vehicle
finance agreement with ABSA Bank. The vehicle is depreciated at 20% on the diminishing
balance. The financial year end on 28 February each year.
Date
28 Feb 2024
28 Feb 2025
28 Feb 2026
28 Feb 2027
Calculation
350 000 x 20% =
350 000 – 70 000 = 280 000 x 20% =
350 000 – 126 000 = 224 000 x 20%
=
350 000 – 170 800 = 179 200 x 20%
=
Depreciation Accumulated
depreciation
70 000
70 000
56 000
126 000
44 800
170 800
35 840
206 640
Carrying
value
280 000
224 000
179 200
143 360
This asset will take longer to depreciate to R1 because depreciation is calculated on the
carrying value (a lesser value) every year.
ASSET DISPOSAL
FIVE STEPS TO FOLLOW WHEN THE BUSINESS DISPOSES OF AN ASSET:
Steps
Transaction
1
Depreciation
2
Accumulated
depreciation
3
Cost price
4
Selling price
5
Calculate
profit / loss
Calculate depreciation for the
current year.
Calculate and transfer the total
accumulated depreciation at the
date of sale.
Transfer the cost price of the asset
Account
debited
Depreciation
Accumulated
depreciation
Account
credited
Accumulated
depreciation
Asset Disposal
Asset Disposal
Vehicles /
Equipment
 Sold for cash
Bank
Asset Disposal
 Sold on credit
Debtors control
Asset Disposal
 Trade-in
Creditors control
Asset Disposal
 Taken by owner for own use
Drawings
Asset Disposal
 Donated
Donations
Asset Disposal
Profit on sale of
asset
Asset disposal
Transfer the selling price of the
asset
Transfer the profit or loss:

Transfer the profit
Asset Disposal

Transfer the loss
Loss on sale of
asset
3
ACTIVITY 1: Asset disposal during the year – Ledger accounts
The information relates to TLC for the financial year ending 31 December 2023.
REQUIRED
1.1
Prepare the accounts in the General Ledger for the financial year. Close off all the
accounts on 31 December 2023.
1.1.1 Equipment
1.1.2 Accumulated depreciation on Equipment
1.1.3 Asset disposal
1.2
Name TWO risks that fixed assets are exposed to and TWO control measures to prevent
these risks.
INFORMATION
Balances on 1 January 2023 (the first day of the financial year)
Equipment
R320 000
Accumulated depreciation on Equipment
R172 200
Depreciation on equipment is calculated at 20% p.a. on carrying value.
TRANSACTIONS during 2023
1 July
Old equipment was sold for R38 000 and an EFT was received. The equipment was
originally bought on 1 September 2021 for R60 000.
31 Oct
New equipment was purchased. 10% of the cost price was paid to IHU and the balance
will be paid in six monthly instalments of R11 700 each.
31 Dec
Provide depreciation for the 2023 financial year.
ACTIVITY 2: Fixed asset note and Asset disposal
The information relates to PPE Traders.Their financial year ended on 29 February 2024.
REQUIRED
2.1
Provide a reason as to why Land & Buildings are usually not depreciated.
2.2
Briefly explain why depreciation is described as a 'non-cash item'
2.3
Refer to Information B.
Prepare the Asset Disposal account on 29 February 2024.
2.4
Calculate the missing amounts labelled (A) to (I) in the Fixed assets note.
4
INFORMATION
A.
Tangible / Fixed Assets:
Land &
Buildings
Carrying value: beginning of financial
year
Cost
Accumulated depreciation
Movements
Additions at cost
Disposals at carrying value
Depreciation
Carrying value: end of financial year
Cost
Accumulated depreciation
B.
Vehicles
Equipment
160 000
57 800
(F)
160 000
0
80 000
(22 200)
52 000
(G)
(A)
0
0
250 000
60 000
(B)
(8 670)
(E)
5 000
0
(4 800)
(I)
250 000
0
(C)
(D)
(H)
(37 300)
Asset disposal
An old vehicle was traded-in, and a new vehicle was bought to replace it on
29 February 2024. The old vehicle cost R30 000 several years ago and the depreciation to
date of sale (this includes the depreciation for the current year) is R20 382. A small profit of
R200 was made on the trade-in.
ACTIVITY 3: Fixed asset note and Asset disposal
The information relates to Twala Computer Shop. The financial year ended on 29 February 2024.
REQUIRED
Complete the Fixed/Tangible Asset note.
INFORMATION
Extract of balances on 28 February 2023
Land & Buildings
Equipment
Accumulated depreciation on equipment
1 147 800
540 000
210 000
Adjustments / Additional information
A.
B.
Land and buildings
The shop premises were extended at a cost of R160 000. This was paid and recorded in
July 2023. However, the bookkeeper had incorrectly debited the Repairs account in the
ledger.
Equipment
Certain unused equipment was scrapped at book value on 30 November 2023. The cost
price was R72 000 and the accumulated depreciation at the beginning of the year was
R40 000. No entry has been made.
Depreciation is written off at 10% p.a. on cost.
5
ACTIVITY 4 (Fixed asset note & Fully a depreciated asset)
The information relates to Adler Traders. Their financial year ended on 29 February 2024.
REQUIRED
4.1
Complete the Fixed asset note by calculating and filling in the missing amounts in the
Answer book.
4.2
Calculate the profit or loss (indicate your choice) on the sale of the asset on
31 October 2023.
INFORMATION
VEHICLES
1 March 2023
1 Nov 2023
The business owned only one vehicle.
A second vehicle was purchased.
Vehicles are depreciated at 15% p.a. on the cost price.
EQUIPMENT
Depreciation is written off at 20% p.a. on the diminishing balance method.
Unused equipment was sold for R42 000 on 31 October 2023. The cost price of the equipment sold
was R70 000. Accumulated depreciation on 1 March 2023 on these items amounted to R36 250.
On 1 January 2024 new equipment was purchased for R78 000.
6
ACTIVITY 5: MANAGEMENT OF FIXED ASSETS
5.1
You are the internal auditor for Kobus Hardware. Kobus is concerned that he is spending
too much on delivering goods to customers. He has provided you with figures for a typical
month, February 2024.
REQUIRED:
Identify ONE problem regarding each vehicle/driver. Quote figures to support your answers.
Give Kobus ONE point of advice for EACH problem identified.
INFORMATION:
A. Kobus has three delivery vehicles and employs three drivers to transport goods to his
customers free of charge. The drivers are expected to work five days per week. There
are four weeks in February.
B.
Some customers live close by while others live further away. None of the customers live
more than 20 km from the shop (i.e. maximum 40 km round trip).
C.
Information from the accounting records for February 2024:
Vehicle 1
Vehicle 2
Vehicle 3
Name of driver
Leroy
Fred
Bheki
Date of purchase
1 Mar. 2022
2 Feb. 2020
1 May 2017
Carrying value
R270 000
R102 000
R1
12
20
20
Salary of driver per month
R8 000
R5 000
R5 000
Number of deliveries made
48
80
120
Average number of trips per day
4
4
6
Kilometres travelled
1 300
4 600
3 000
Average number of kilometres per trip
27
58
25
Petrol (litres) used
59
209
214
Kilometres per litre
22
22
14
Petrol costs (R11,31 per litre)
R668
R2 365
R2 424
Petrol costs per km
R0,51
R0,51
R0,81
Number of days driver worked
7