In this session we will have a look at fixed assets, the acquiring of assets, disposal of assets and the depreciation on assets. I will show you after can for sssp by the account for assets that we sell, and how to account for depreciation on the assets in the financial records. That's quite a technical subject. So you need to concentrate and make sure that you understand and we account for these transactions in the accounting records and make sure that you understand all the calculations. First of all, we need to have a look at the theory. fixed assets can be acquired by cash check or the purchase price of an asset is the cost price.

We're not buying it For under 1000 that hundred thousand Rand is the cost plus movable fixed asset depreciate over time. If I buy an asset in January for 100,000 and I use this acid up until December and in December I want to sell this asset, I will not get 100,000 I will most probably get it thousand. Now, the difference between the hundred and the 80,000 is depreciation. This asset depreciated over the time that I used it and we need to account for this depreciation in our accounting records. The accounting policy of a company will determine if a depreciation is calculated on the straight line method or the reduced balance method. So, there's two methods that we can calculate depreciation.

The first one is the straight line method. The second one is the reduced balance method. And I will show you the difference later on the cost price of an asset list accumulated depreciation is the book value or the carrying value of that asset. So, the cost price list the depreciation is the book value and we will account for assets at book value who carrying value in our financial records. Assets are accounted for at book value and if they are sold for a price higher than the book value, a profit will be made assets can be sold for less than repeller and in this instance, a loss will be made. And in the example I explained to you how our loss is made and our profit is made, the difference between the straight line method and the reduced balance method.

First of all the straight line method I buy an asset for and itself So, the cost is and we bought this vehicle in January and I used it to December and the company policy stipulates that I need to reduce the value of this asset and increasing via so depreciated at inverse interest in the same things as red and the depreciation for year one is 10,000. So at the end of year one more book value is 90,000. Then in year two, I need to my provision for depreciation again, yeah, 200,000 times 10% equals 10,000. So you do 10,000 in depreciation, book value 90 listing new credit. It says that at the end of year two, then in year three or use the acid from January till June and at the end of June by salty acid hundred thousand times 10% six Eric 12 so I use the vehicle for six months, January February March April May and June and the depreciation for that six months 4008 semi depreciation for year three 4008 and the new new booklet is 74,000.

Now the straight line method, you can see that I use the cost price times 10% to calculate the depreciation for year one, and for you two and four year three. So on the straight line visit is the cost price times the depreciation rate of 10% and that will give me depreciation then the reduced balance method I bought a vehicle for and so my cost is 100,000 and the policy stipulates that I need to reduce the value at 10% a year on the reduced balance method to first Mr Costas hundred thousand eight I bought the vehicle in January not use it till December as think percent 10,000 in depreciation so, yeah one more depreciation thing sounds great. book value is 100 listing 90,002nd year the book value is 90,008 times 10 percent post not so I used the book value to calculate the depreciation book value 90,000 times 10% 9000 depreciation for year two.

So at the end of year two my new book value 84 1008. Then in year three are used the vehicle from January through June and in June I saw the vehicle so year three, the book value it 1000 times 10% times 612 that is 4040 So, is it 1,813% eight 100 612 4040 is 4050 and I will get my new book value So you can see the difference between the straight line method and the reduced balance method. The straight line method, we use the cost price to calculate the depreciation for every cost, price cost price 13% reduced balance method, we use the cost price in the first year. In the second year, we used the book value at the end of year one. And in the third year, we use the book value as at the end of year two, and we calculated the depreciation on the value.

So, let's look at an example. First of all we need to do all the calculations. And from the calculations we will do the general journal and we will copy the general journal into the general ledger. Two vehicles were bought by cheque for respectively 100,000 and 300,008 on the first of January 2001. So the company's financial years from January till December and on the first of January 2001, we bought two vehicles vehicle 100,000 red and vehicle two 300,000 vehicle one is depreciated 10% a year on the reduced balance with vehicle one is depreciated on the reduced balance method at 10% per year, vehicle two is depreciated at 20% a year at the straight line method. So, vehicle two straight line method 20% per year so, for year one we need to calculate the depreciation from January to December.

So 100,000 times 10% equals 10,000% depreciation for the first year on the first vehicle thanks Tell me and the book value hundred listing 90,000 a second vehicle 300,000 times 20% 60,000 this 60,000 240,000 so the book value in 31st of December 2001 is 90,000 for vehicle one and 240,000 men for vehicle T. Then the next financial year 2002 vehicle one was sold on 30th of April for 90,000 minutes we use the vehicle from the first of January 2002 to the 30th of April and we need to calculate depreciation on the reduced value In specific 90,008 to book value 10% times for every January February March and April 90 times 10 is 9000 rentals four divided by 3008. The depreciation 3000 read for the second year and the book value 8793 87,000 and the vehicle was sold for 90,000. Sell the vehicle for 90,000 and the selling price is higher than the book value so we sold the vehicle for more than the book value in the market profit 3000 so the profit is 3008 in the second vehicle vehicle T was sold on the 30th of semaphore 187 first of all we need to calculate depreciation from the first of January until ii 30th of September, and it's on the straight line is a straight line method cost price 300,008 times 20% times nine over 12.

We used it for nine months, January till September. It was 45,000 in depreciation 44,000. Read book value to 14 is 44 195. And we sold the vehicle for 180,000 selling price and it sells again. And we sold the vehicle for the book value. So we might have lost 15,000.

So one on five minutes one at 15,000 men loss So vehicle one we need to do the general general from this calculation so it's pretty important that we first do the calculation and then prepare the general journal on the first of January 2001, we may have bought a motor motor vehicle motor vehicle is an asset. Yes we can move plus an asset becomes more we need to debit hundred thousand and that should be paid for the vehicle. And we paid for it by cheque to banks and acid. So produced minus an asset becomes less, we need to create it undred thousand we write off depreciation of 10,000 on the 31st of December. depreciation is an expense. Expenses became more plus an expense we can more we need to David Thousand and then we have an account called accumulated depreciation accumulated depreciation is a balance sheet item.

And accumulated depreciation is an account that reduces assets. So it's an asset, the asset became less it's worth less than an asset becomes less we need to create it and now we have accounted for the acid for the first financial year two, one, then vehicle two on the first of January 2001, important vehicle for 300,000 magnificent asset Yes, we can move plus if an asset becomes more we need to debit 300,000 dreams. Bank is an asset asset became this minus we paid for it, if an asset becomes less, we need to create it 300,000. And we depreciated the asset with 60,000. So depreciation expense expenses became more plus an expense because we're going to debit 60,000 cumulated depreciation account that makes assets less and as it becomes less we need to create a 60,000 grand and we have accounted now for the transactions up into 31st of December 2001.

Know that we've prepared the general journal and now we just need to copy and paste into the general ledger. Motor Vehicle costs 100,000 vehicle costs 200,008 David thank hundred thousand entry bank hundred thousand treated depreciation 13,000 rent debit, depreciation things. David, can you pull that accumulated depreciation, interest rate credit accumulated depreciation things as in rent credit, we normally put the cost and the next account will be accumulated depreciation in vehicle to both the vehicle 300,000 rent and debit the candidate for that purchase Brian bank 300,000 entry, calculate the depreciation 60,000 rent depreciation 60,000 accumulated depreciation 60,000. So, the total cost is 400,000. That's David's and accumulated depreciation 37. Is the cheque created.

So 400,000 Rand David, and 70,000 Rand created will leave us with a need of 30,000 350,000 Rand David. And then 360,000 and David is 240 plus 9240 plus 90 is 330. So that's why it's pretty important that you first do the calculations and then complete your calculations with your general ledger. So we have assets of 400. We wrote of 70. And now the book value or the carrying value is 330,000.

They need to be depreciated. The vehicle with 3000 men up until the city as of April So, depreciation is an expense expenses become more 3000 direct debit accumulated depreciation asset minus asset becomes less we created 3000 print we solved the vehicle on the 30th of April. So in the general ledger you can see that we have a medical cost for 100,000 and we have accumulated depreciation of 10,000. That was up until the 31st of December 2001 for 30th of April 2002, we added another 3000 in accumulated depreciation. So, for year two, they will plus 3000 rent accumulated depreciation 15,000 rent free When we sell the vehicle, we need to take the vehicle out of our county records because we don't have it anymore. Somebody's vehicle cost, it's in the at the moment is a debit of 100,000 in assets, asset reduces.

When an asset becomes less, we need to create it undred thousand that amount the need to take that out of that accounting records and we take it to an account called profit or loss we sell an asset that's an income statement item. When you created the cost, you need to debit the profit and loss account and debit. And then in the accumulated depreciation account we have 10,000 rent and 3000 in title 13 Tasman trade accumulated depreciation that's accrued. So, we will debit it now, we will take it out to 18,000 debit and we will take it to the profit and loss account 13,008 created. So, in the profit and loss account, we have 100,000 David's debit and we have a 13,000 rent created 13,000 Rand created that leaves us with 87,000 debit and we received 90,000 for the vehicle. So, bank banks and asset ffensive k mu plus if an asset becomes more we need to debit 90,000 rent and the other side of the entry profit and loss account 90,000 is created.

So, in the profit and loss account 90,000 treated at seven David is 90 treated Leave us with 3000 rent credit and that 3000 treated is the profit that we made vehicle t we need to do the journal entries for 2018 we depreciated the vehicle over 44,000 depreciation is an expense which is more plus an expense we can move me there at 44,000 accumulated depreciation asset asset reduced, asset becomes less we need to create it 45,000 so, in yeah we have 60,000 and up until the end of 2001 and for 2002 it's another 45,000 in credit so it's 105 and we sold the asset the motor vehicles when we sell it To reduce it minus and as it becomes less and less it becomes this we created 300,000 and we take it to the profit and loss of can 300,000 debit accumulated depreciation asset and that account wasn't created.

So we will have to debit the account, debit the account with 60 plus 40 504,008. And we will take it to the profit and loss account and 5000 in a profit and loss account, we have 3000 debit and we have 105,000 treated Nate, one nine for debit and we received an 80,000 rent for the vehicle that we sold to bank is an asset in such a more plus as it becomes moving to David and written 87% and we take it to the profit and loss account create attention 80,000 880,000 rent created and that will leave us with 15,000 a debit. And that 15,000 and David is the last net we might mean resolve the answer. At the end of year one, we had 400,000 grand in the cost account. So yet to the opening balance here to 400,000 in end of year one, we had a credit balance of 70,000 for accumulated depreciation opening balance 70,000 and the net is 400 73 and 50,000 copier price the journal for year two into the general ledger depreciation 3000 depreciation 3000 rent accumulated depreciation created 3000.

So vehicle one from the first year 10,000 depreciation vehicle to 60,000 depreciation plus vehicle one our additional 3000 we sold the vehicle on the 30th of April somebody vehicles traded hundred thousand 800 credit and with David profit and loss account 100 profit and loss account accumulated depreciation 13,000 rent David. So we added 13,000 in the last 3000 for vehicle one we need to take it out setting Thousand debit insensitivity, and we take it to the profit and loss account, profit and loss account 13,000 grain we received 90,000 Bank debit 90,000 read profit and loss account 97 million and we balanced this account 13 plus 90 is 103. There's only 100 days so we need to put in 3000 debit and we transfer that to the credit side. And the 3000 is the profit that we made when we sold the first vehicle. Second vehicle 30th of September depreciation 45,000 in depreciation 44,000 accumulated depreciation 4444.

So for second vehicle we have 16 year 45 that's 105,000 men title. We sold the vehicle, same motor vehicle 300,008 three and the salary created. Take it to the profit and loss account 300,000 David underwritten 4000 debit accumulated depreciation 60 plus 45 105 and we take it to the profit and loss account 105 counted for that we received 180 in the bank when it did take it to the profit loss credit and an 80,000 credit motor vehicle 400,700 and 300,000 credit is no difference between the debit and the credit side. So the New Balance zero cumulated depreciation 70 plus three plus 40 518. We took out 13 plus handwritten 518 the difference between a debit the credit side New Balance zero, we don't have the vehicles anymore. We don't have the vehicles anymore in balance in our Kansas Sara, profit and loss account.

Those entries resulted in a 3000 brand credit. Second vehicle underwritten five plus one at least three to 300,000 will result in a 15,000 Rand David. So 300,000 police and fire at least one at 15,000 in David, but it also 3000 rain created in the so 3000 and credit laser 15. David will result in a 12,000 rain. David so the balancing figure yes 300,000 rain, three plus 105 plus 180. We need to put in 12 300,000.

That's the balancing figure and you 12,000 rent David so it was a 3000 credit less 15,000 named David and that will resulted in Thrall thousand rent David that's the last letter we made. When we sold asset one and asset two then in the financial statements in the balance sheet we will have a line item called fixed assets and they will be a nightmare that one and they will be attacked for three to four for one to see. If you patch really financials will go nuts and you will see that one fixed assets and you will see a total 2.245 million that balances with the 2.245 million in the balance sheet. This is now a four year fix that at the end of year x, we will see a carrying value on the 31st December 2008. Cost 2 million Rand for land and buildings at the end of year x, by the way cost you 1000 in linear costs plants and machinery 54,000 computer equipment 70,000 and a total cost of 2,324,000.

And they will be accumulated depreciation and will be zero many vehicles 35 1530 and a total of 80. So, the carrying value or the book value for land and building is 2 million this year. 2 million rain vehicles 200,000 is 34 165 35 please 1540 and 70 listen City 14 said book value of all our assets are 2.245 million. Then in year one during the financial year ending 31st of December 2000 why the following transactions we acquire Florida machinery 400,000 acquires computing equipment 200,000 sold motor vehicles 50,000 and we add provision for depreciation. First of all we need to copy the carrying value as at the end of x as the opening value for 112 thousand wife for your wife. The cost 2 million day Missy 2 million and the depreciation to 100 costs 35 cumulated 235 55 and 1555 and 1570 and 30 1730.

And the opening book value is 2.24 or 5 million to four or 5 million in the movement for the year. First of all, we bought plant and machinery 100,000 conditions, plant and machinery and computer equipment 20,000 2008 additions and we sold the motor vehicle on the 31st of August for 50,000 Rand so that motor vehicle was sold at the end of August. Now the depreciation motor vehicles 50,000 depreciation 50,000 rent, cloning, machinery, depreciation 20,000 rent and computer equipment 34,000 depreciation 34,000. The book value of the matter vehicles at the beginning of the year was 165. And we depreciated the vehicle with another 50,000. So 165 plus 50 will give us a book value of 114 thousand and we sold the vehicle so, we need to take out the booklet because we don't have the vehicle anymore.

So, underwritten 15,000 solanum buildings opening costs 2 million rent no depreciation the movement cost closing 2 million accumulated depreciation zero balance 2 million In many vehicles, opening costs 200,000 accumulated depreciation 35 depreciation 50. So the total depreciation 85 and we sold the vehicle for under 15 cost 20,000 then nothing resolved vehicle accumulated depreciation 35 plus 50 but we solved the vehicle zero. Now I can add 165 less and written 5015 less 50 zero implanting machinery 55,000 Rand cost we bought on machinery 400 so 55% hundred 155 depreciation opening 15 depreciated 2015 plus 2035 155 plus 35 120 book value, computer equipment 70 cost bought for 200 new costume 17 depreciation 30. We provided depreciation of 3560 for depreciation closing to 70 less 65 to 4000 read book value. So 40 plus 200 plus 35 we'll get to five and then we add all these columns, 2 million plus 120 plus 205 2.3 to 5 million cost arable the costs 245 Arab only depreciations 100,002 point 45,800,000 weekly 2.235 million so any financial statements balance sheet They will be fixed assets, it will be a net and total of 2.3 to 5 million.

And if you want to see the breakdown of this 2.3 to 5 million Rand it will get to the next and you will get in that one and he will see that 2325 has been later. It is very important that you're going to do the manual can do the examples. Make sure that you know how to calculate the depreciation and add to account for all the transactions. In the next session, I will show you how to prepare a trial balance, compile the income statement in the balance sheet from the trial balance. And we literally copy and paste from the general ledger to the trial balance and the income statement and balance sheet. See you guys in the next session.