It is advisable as an entrepreneur/learner to read the IAS-16 document for there is a lot of information pertaining these nature of assets. The key issue of accounting for PPE as guided by IAS-16, is to recognize the assets thereof, determination of their Net Book Value (NBV) also referred to as Carrying Amount (CA), depreciation charges, revaluation and any impairment losses. The main objective of IAS-16 is to guide how non-current assets ( also referred to as properties, plants and equipment-PPE) is maintained in the books of account for the sake of users of financial statement such as investors who wish to discern information about the organization’s investment in its non-current assets and any change occurring over the years. Non-current asset accounting treatment is governed by International Accounting Standard (IAS) number 16. The subject of non-current assets is wide and its accounting treatment is diverse. Further, read on tothefinance.Properties Plants And Equipment (PPE) Schedule It’s important to note that there can be loss if cash received by selling asset is lower than carrying value. It’s because the cash received is more than carrying value of the assets. This entry records profit in the accounting books.This entry removes contra account from the books of accounts.Hence, there is a need to remove costs from books. It’s the removal of original costs from accounting books.This is the amount received against the sale of the PPE. It’s a debit entry and recorded as an increase of cash.Let’s analyze the given transaction in the above journal entry for sale with respect to serial number. This transaction can be posted as follows. It means there is a profit of $300 ($700-$400) in the books of accounts. So, the carrying value of the asset amounts to $400 and sold for $700. For instance, the cost of an asset amounts to $10,000, accumulated depreciation amounts to $9,600. The disposal of PPE leads to the removal of asset costs and the accumulated depreciation. Accounting entry for disposal of the property plant and equipment This revaluation surplus is utilized for excess depreciation and any impairment if applicable in the future. On the other hand, credit impact is recorded for the revaluation surplus in OCI. This difference is $2,000 (assumed as recorded). It’s important to note that appreciation is calculated by comparing the current market value/fair value with the carrying balance. The debit impact of the transaction is recording asset appreciation. For instance, the dollar value of the asset raises by $2,000 from carrying value. If the value of an asset is appreciated, it needs to be recorded in the books. Further, it’s important to note that deduction of the accumulated balance from original cost leads to Net Book Value. However, it’s a temporary account and removed on disposal. Year to year, we keep charging depreciation and adding balance to the accumulated depreciation account. This contra account is removed from books of accounts once we remove an original asset via disposal. On the other hand, the credit impact of the transaction is the creation of contra account against the original cost balance. It’s a normal expense recorded in the financial statement via income statement. The debit impact of the transaction is recorded for the depreciation. So, the following journal entry can be posted in the accounting system. Following calculations need to be performed.ĭepreciation = cost of asset / useful life To depreciate assets we need to assess useful life and follow certain accounting principles.įor instance, let’s assume an asset is a purchase for $10,000 and the useful life of the asset is 20 years and the selected accounting method is a straight line. Once an asset is brought into the useable condition, accounting standards require charge of depreciation on the assets. On the other hand, accounts payable is recorded as there is an increasing obligation for the business to settle liability in the future. Further, it’s classified as a non-current asset because the economic benefit is to be obtained in more than one accounting period. The debit impact of the transaction is recorded for the assets as it’s an inflow of asset for the business. For instance, the business purchases PPE amounting to $10,000 on credit. The following journal entry is posted when PPE is purchased via liability. Accounting entry for disposal of the property plant and equipment.Accounting entry to charge depreciation.Accounting entry on the purchase of PPE.
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