9.3 Derecognition Flashcards
what is derecognition
when it is sold or retired (removed from the accounts)
when does derecognition happen
at the end of an assets useful life
What are 4 steps to derecognizing assets
- what is an important thing to note
1) update depreciaiton: if depreciation occured part way through acct period, update depreciaiton
2) calculate carrying amount: update by - depreciation from step 1
3) calculate the gain or loss: determine amt of gain or loss on disposal by comparing carrying amt with the proceeds received on disposal
4) Record the disposal
Note: Steps 1 and 2 are not applied when derecognizing land
how to calculate gain/loss on disposal
cost- acc depreiciation= carrying amt
proceeds- carrying amt= gain /loss
how are loss on disposal recorded in books
DR cash/A/R
DR Acc depreciaiton
DR Loss on Disposal
CR Specific PPE
HOW ARE GAINS ON DISPOSAL RECORDED
DR CASH
DR ACC DEPR.
CR SPECIFIC PPE
CR GAIN ON DISPOSAL
the carrying amount of $21,500 does not appear in the above journal entry because the carrying amount is the net amount of two account balances: the equipment’s cost of $60,000 and the accumulated depreciation of $38,500.
the carrying amount of $21,500 does not appear in the above journal entry because the carrying amount is the net amount of two account balances: the equipment’s cost of $60,000 and the accumulated depreciation of $38,500.
Retirement of Property, Plant, and Equipment
If a company no longer needs an asset and is unable to sell it, then the company will simply retire (or scrap) it. Recording a retirement is similar to recording the sale of an asset except that there are usually little or no proceeds to record
je FOR RETIREMENT
Dr Cash
Dr AD- equipment
CR Equipment
If the cash received when an asset is retired is greater or less than the asset’s estimated residual value, a small gain or loss would result.
what is the JE
DR ad- equipmenet
Dr Loss on disposal
CR equipment
Note that, even if the asset had a carrying amount of zero and the company received no proceeds on disposal, the company would still need to record a journal entry to remove the asset and its related accumulated depreciation from the books. Failing to do this would cause the asset and its accumulated depreciation to be overstated, because the asset was not derecognized.
Note that, even if the asset had a carrying amount of zero and the company received no proceeds on disposal, the company would still need to record a journal entry to remove the asset and its related accumulated depreciation from the books. Failing to do this would cause the asset and its accumulated depreciation to be overstated, because the asset was not derecognized.
A company can continue to use a fully depreciated asset and continue to recognize the asset and its accumulated depreciation on the statement of financial position even after its estimated useful life expires. However, the company would no longer record depreciation. Reporting the asset and accumulated depreciation on the statement of financial position informs users that the asset is still in use.
A company can continue to use a fully depreciated asset and continue to recognize the asset and its accumulated depreciation on the statement of financial position even after its estimated useful life expires. However, the company would no longer record depreciation. Reporting the asset and accumulated depreciation on the statement of financial position informs users that the asset is still in use.
