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Disposal of non-current asset at the end of useful life

Usually, non-current assets are disposed at the end of its useful life. At that point, the
carrying value of an asset is its salvage value. Therefore, when the proceeds from
the disposal are equal to the net book value, then there is neither a gain nor a loss on
disposal. Meanwhile, if proceeds from the sale exceed the net book value, there is a gain
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on disposal and its vice versa is a loss.

Example 7.11
On 1 January 2021, the books of Sundra Co Limited had the following net book
st
values in its two non-current asset accounts: plant account TZS 110 million and
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vehicle account TZS 25 million. The company sold the plant for a cash amount of
TZS 30 million on 1 March 2021 and on 1 December 2021, the company’s vehicle
st
st
got accident. It was very unfortunate for the company that the motor vehicle was not
covered by insurance. Based on company’s policy, depreciation is charged on a full
year basis using straight line method.
Required: Prepare asset and asset disposal accounts for recording all these events.

Solution 7.11
Sundra Company Limited
Dr Plant account Cr
TZS TZS
Date Particulars Date Particulars
“000” “000”
Jan. 1, 2021 Balance b/d 110,000 Mar. 1, Asset disposal
2021 a/c (note 1) 110,000
110,000 110,000

Dr Vehicle account Cr
TZS TZS
Date Particulars Date Particulars
“000” “000”
Jan. 1, 2021 Balance b/d 25,000 Dec. 1, Asset disposal 25,000

25,000 2021 a/c 25,000

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