Page 116 - Demo

113Ch(5): Plant Assets DisposalIn this case, the asset and its accumulated depreciation continue to be reported on the balance sheet, without further depreciation adjustment,until the company retires the asset. Reporting the asset and related accumulated depreciation on the balance sheet informs the financial statement reader that the asset is still in use. Once fully depreciated, no additional deprecation should be taken, even if an asset is still being used. In no situation can the accumulated depreciation on a plant asset exceed its cost.If a company retires a plant asset before it is fully depreciated and no cash is received for scrap or salvage value,a loss on disposal occurs Illustrate (5 -5):On April 15 2019, Eman Company discards delivery equipment that cost BD 22,000 and has accumulated depreciation of BD16,000. The entry is as folloDateExplanationDebitCreditApril 152019Accumulated Depreciation -Equipment16,000Loss on Disposal 6,000Equipment22,0001-Sales of Plant Assets: In a disposal by sale, the company compares the book value of the asset with the proceeds received from the sale. If the proceeds of the sale exceed the book value of the plant, a gain on disposaloccurs. If the proceedsof the sale areless than the book value of the plant asset sold. A loss on disposal occurs.Illustrate (5 -6):Gain on DisposalOn July 1 2018, Salman Company sell office equipmentfor BD15,000 cash. The office original cost BD50,000. It had accumulated depreciation of BD39,000.To compute gain or loss from selling the equipment: