GROUP FIVE

FINACIAL ACCOUNTING
QN 5
1. MERCY NAKKAZI VU-BPL-2307-0731-EVE
2. CONNIE PAULINE VU-BBA-2307-0333-EVE
3. SHALOM ACHIENG VU-BTH-2307-0777-EVE
4. KAIRE AGNES VU-BPL-2307-0632-EVE
5. ADIO HARRIET VU-BBA-2307-0425-EVE
6. KAYONGO DANIEL
7. EVELYN NALUWAGGA VU-BBF-2307-0045-EVE
12. Describe the term disposal of
assets
Disposal of assets is the removal of a long-term asset from a
company's financial records. It involves the removal done by
selling, scrapping, donating or getting rid of tangible or intangible
assets that a business no longer needs to retain.

These assets can include property, equipment, investments or any

other assets that have financial value. The disposal of assets can
have accounting and tax implications as it may result in gains or
losses that need to be recorded and reported.
Asset disposal is accounted for by removing the asset cost and any
accumulated depreciation and impairment loss on the income
statement.
Steps for asset disposal

Decision Making: Valuation: This

Accounting: This
This involves involves
involves update of the
deciding whether to determination of fair
financial statement to
Identification: sell, scrap, donate or market value of the
reflect the disposal, by
Identify the asset that any other disposal, the asset, this can be done
this a record of the
needs to be disposed choice will depend on through various
gains or losses from
off and determine factors like the methods such as
the disposal and
their current value. condition of the asset, market comparisons,
adjusting the assets
market demand and appraisals or
and depreciation
financial discounted cash flow
accounts accordingly.
consideration. analysis.
Steps for Asset Disposal Con’d

Executing: This Documentation:

involves carrying out Maintenance of records Reporting: Report the
the chosen disposal and documentations of disposal of assets in
method, whether it the disposal process financial statements and
involves selling the including sales disclosures to provide
asset dismantling it for agreements receipts and transparency to stake
parts or any other any compliance related holders.
means. paperwork.
Reasons for Disposal of Assets

OBSOLESCENCE:
these are assets that FINANCIAL
have become outdated WEAR AND STRATEGIC LEGAL OR
OPTIMIZATION: REALIGNMENTS: a REGULATORY
and no longer serve TEAR: these are some assets are REQUIREMENTS:
their intended purpose. company may devest
assets that become disposed off by certain assets to focus some assess may need to
won out over time companies to free up on its core business be disposed off to comply
and as such requiring capital for other operations or to exist with laws and regulations
investments, pay debts such as environmental
replacement or or improve liquidity.
from under performing regulations that require
disposal. segments. disposal of hazardous
also, if the cost of
repair of the asset is materials.
higher than the asset
value.
13. With an illustration, highlight how disposal of assets is
treated highlighting the treatment of gain and loss on disposal
 Gain happens when you dispose the fixed asset at a price
higher than its book value.
Book Value= Original Cost- Accumulated Depreciation

 Loss happens when you dispose the fixed asset at a lower price
than its book value.

Gain or Loss = Selling Price- Book Value

◦ Suppose Pioneer Motors a manufacturing company decides to
dispose off an old vehicle that is no longer in use. The Vehicle was
purchased for $50,000, and its accumulated depreciation is
$20,000. Pioneer Motors sells the vehicle for $30,000 in cash.
Gain on disposal:
Book Value= Original Cost- Accumulated Depreciation
=$50,000-$20,000
=$30,000
Gain or Loss on disposal=Sale Price-Book Value
=$30,000-$30,000
=$0
In this case there is no loss nor gain because the sales price is equal to
the book value.
Since there is no gain or loss on the disposal, nothing is recorded on
the income statement related to this transaction
 Treatment of results
Income Statement
Loss; if your company incurs a loss it is recorded as an expense. This reduces your net income which may impart your
taxes and overall financial health.
Gain; gains such as from sales or an asset or investment are recorded as revenue or other income in the income statement
increasing your net income

Balance Sheet
Loss; losses do not appear directly on the balance sheet instead they reduce the equity section of the balance sheet. This
ca occur through a decrease in retained earnings or capital account.
Gain; these may increase equity if retained earnings are credited with the gain amount

Statement of Cash flows

Loss; losses do not directly impact the cash flow statement however they can affect cash flows indirectly by reducing the
net income which can impact operating cash flows.
Gain; these can impact the cash flow statement e.g. gains from the sale of assets or investments.
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