ACCE 212

INTRODUCTION TO FIXED ASSETS

 ACCOUNTING FOR ALL

• CHAPTER 8:
NON-CURRENT ASSETS –
DEPRECIATION
(p. 258-286)
 LEARNING OUTCOMES

• Identify, enter and disclose the purchase and sales of fixed/tangible

assets (property, plant and equipment) and intangible assets during the
financial year;
• discuss the principle of depreciation and apply it in practice;
• correctly calculate depreciation by using different depreciation
methods; and
• facilitate learners to write entries for the disposing of property, plant and
equipment.
• facilitate learners to determine the cost price of a non-current asset and
enter the transaction in the books of an entity;
• calculate the depreciation on property, plant and equipment according
to the following methods and entering related entries:
- straight line method;
- declining (diminishing) balance method; and
• show assets in the financial statements of an entity
 LEARNING OUTCOMES

• master the Curriculum and Assessment Policy

Statement (CAPS) Grade 10 - 12 of Accounting
in such a way that you can give meaningful
instruction to the learners in your Accounting
class;
• discuss the general didactic principles applicable
to education and training and apply them to
Accounting
• application of the systematic knowledge regarding
lesson planning and problem solving that reflect
the basic Accounting procedures and processes
 WHAT SHOULD LEARNERS KNOW?

• Understand the concepts relating to Tangible

assets.
• Prepare the records that affected by acquisition
and disposal of tangible assets.
• Depreciation of tangible assets using the fixed
instalment method and the diminishing balance
method.
• Completion of the Tangible assets note.
• Internal control processes and Ethics relating to
Tangible assets.
• Integration of GAAP principles.
 FLOW DIAGRAM

ASSETS

CURRENT NON-
ASSETS CURRENT
ASSETS

Trade-and Cash and Cash Fixed/Tangible Financial

Inventory other equivalents Assets Assets
Receivables
 FIXED ASSET REGISTER

• Must be completed for non-current assets such

as VEHICLES and EQUIPMENT
• When the business buy a new fixed asset the
information about that asset will be entered in the
FIXED ASSET REGISTER of the business.
 FIXED ASSET REGISTER

• A Fixed asset register contains the following

information regarding the asset:
1. Description of asset
2. Serial number
3. Date of purchase
4. Details of Supplier
5. Cost price / Purchasing price
6. Depreciation method
7. Depreciation rate (%)
8. Annual depreciation written off
9. Accumulated depreciation written off.
10. Carrying value of asset to date
(Look at examples 8.11 & 8.12 in Accounting for all)
COST PRICE OF FIXED ASSETS

The cost price of the asset

comprises the purchase
price plus initial delivery
and handling costs, and
installation costs, excluding
VAT.
(Read more about this on
p. 267 in Accounting for All. )
COST PRICE OF FIXED ASSETS
Part of the COST
PRICE of VEHICLES:
• Electric windows
• Tracker
• Radio
• Air conditioner
• Mags
REASON: Adds value to the
vehicle purchased and will be part of
the total cost price paid for the
vehicle.
COST PRICE OF FIXED ASSETS
Not part of the COST PRICE
of VEHICLES:
• Repairs done on the
windows, tires, paint jobs,
etc.
• Vehicle license
• Maintenance on vehicle

REASON:
Does not add value to the
vehicle purchased. It will be
an EXPENSE to the business
and will be entered as
VEHICLE EXPENSES.
COST PRICE OF FIXED ASSETS

Part of the COST PRICE

of EQUIPMENT:
• Installation costs, for
example cost to install
a computer and printer.

REASON:
Any Installation costs
must be regarded as part
of the total cost price of
equipment.
COST PRICE OF FIXED ASSETS
Not part of the COST PRICE
of EQUIPMENT:
• Repairs
• Computers / printers that
needs maintenance
• Printer ink / paper

REASON:
These are EXPENSES and
will not increase the value
of the equipment.
 DEPRECIATION
Depreciation is commonly associated with the
decrease of the value of the asset as a result of,
wear and tear and obsolesce.

Depreciation is an expense and is closed to the

profit and loss account on the last day of the
accounting period.
 ACCUMULATED DEPRECIATION

Accumulated depreciation of asset account, is a

negative asset account.
The asset account therefore shows the cost price as
long as the asset is in the possession of the entity,
while the Accumulated depreciation account shows
the specific depreciation that is written off up to a
specific date.
The difference between the debit balance of the asset
account (cost price) and the credit balance of the
accumulated depreciation account (total of
depreciation already written off) is the book value
(carrying value) of the asset.
CALCULATION OF DEPRECIATION

COST PRICE/
DIMINISHING
STRAIGHT LINE / FIXED
BALANCE METHOD
AMOUNT METHOD

Depreciation Depreciation
calculated on the calculated on the
Cost Price of the Carrying value of
asset the asset

CP X % CP – ACD X %
 COST PRICE / STRAIGHT LINE / FIXED AMOUNT
METHOD

There are different methods of calculating

depreciation for school purposes:
• Straight line method, also known as the fixed
amount method or the cost price method
With this method a percentage of the cost price of
the asset is calculated to obtain the current years
depreciation.

This is the simplest method to calculate depreciation

for the year on an asset.
 DIMINISHING VALUE METHOD

• Declining balance method or the book value

(carrying value) of the asset
• Depreciation for the year is calculated on the
carrying value / book value of the
Cost price – ACD = Carrying value
• Example 8.12 in Accounting for all is a good
example of this method.
 RESIDUAL AMOUNT

• The physical life of an

asset – e.g. a computer
has a lifespan of 5 years.
• Lifespan of vehicles will
be determined by the km
travelled, maintenance ,
etc.
• The full value of an asset
cannot be written off,
while in the possession of
the business. The
carrying value may never
be less than R1.
 APPRECIATION

• Most fixed assets value

will decrease over time.
Assets like Land and
Buildings can increase
in value over time.