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 TABLE OF CONTENTS Page
1. Management of tangible assets 3

2. Concepts 3

3. Asset register 4

4. Methods of calculating depreciation 4

5. Calculating depreciation 5

6. Purchase of assets 7

7. Disposal of asset 8

8. Format – Note on Tangible Asset 10

9. Internal control 12

10. Ethics 12

11. Problem solving 13

12. Important notes 15

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1. MANAGEMENT OF TANGIBLE ASSETS

LAND AND BUILDINGS VEHICLES AND EQUIPMENT

➢ The value depreciates

➢ The value appreciates
▪ Wear and tear
▪ Limited supply
▪ Obsolete – new
▪ Cost of building increases
technology

2. CONCEPTS

CONCEPT EXPLANATION

Depreciation Loss in value of an asset in an accounting period.

Accumulated Is the total amount of depreciation deducted from the

Depreciation fixed asset since it was purchased.

Carrying value / Original cost price less the depreciation that has
accumulated over the period in which the asset has
been in the business.

Age of Assets Businesses should monitor their assets to identify

assets that need to be replaced. Assets that are old
due to wear and tear should be replaced with efficient
assets.

Replacement Rate How often the business determines a fixed asset will
be replaced.
Replacement Value of When a fixed asset has to be replaced, the business
Assets needs to look if it is worth replacing the old asset and
what it will cost them to buy the new asset.
Lifespan of assets Estimated length of time the asset can reasonably be
used to generate income and be of benefit to the
business.
Asset register A register showing each asset individually.

Residual amount The full amount of an asset cannot be written off as

long as it is in the business’ possession. The
carrying value is kept at R1

3
3. ASSET REGISTER

DETAILS ON AN ASSET REGISTER

➢ Description of asset ➢ Depreciation – method of calculation

➢ Serial number ➢ Amount of depreciation
➢ Receipt/invoice ➢ Accumulated depreciation
➢ Date of purchase ➢ Value of asset
➢ Supplier’s details ➢ Expected residual value
➢ Purchase price

4. METHODS OF CALCULATING DEPRECIATION

4
5. CALCULATING DEPRECIATION

STRAIGHT LINE METHOD

𝑅𝑎𝑡𝑒 𝑚𝑜𝑛𝑡ℎ𝑠
𝐶𝑂𝑆𝑇 𝑥 𝑥 = 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
100 12

DIMINISHING BALANCE
METHOD

𝑅𝑎𝑡𝑒 𝑚𝑜𝑛𝑡ℎ𝑠
𝐵𝑂𝑂𝐾 𝑉𝐴𝐿𝑈𝐸 𝑥 𝑥
100 12
= 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛

ACCUMULATED BOOK
COST
DEPRECIATION VALUE

ACCOUNTING PERIOD – 12 MONTHS

OLD/REMAININ NEW SOLD

G12 MONTHS FROM THE DATE FROM THE
OF PURCHASE BEGINNING OF
UNTIL END OF THE YEAR UNTIL
ACCOUNTING THE DATE WHEN
PERIOD SOLD

5
 HOW TO GET THE REMAINING/ OLD

Balance beginning – asset disposal = old

Balance beginning (Cost beginning – Asset disposal)

– asset disposal beginning - (Acc dep beg – Asset disposal beginning)
= old = Book value old

6
6. PURCHASE OF ASSETS

The business wants to keep up to date with new technology

Running costs of current assets may be too high.
The existing equipment has become old / out of date

WHEN ARE TANGIBLE ASSETS DISPOSED AND AQUIRED?

REASONS:

➢ Existing asset is too old or has outlived its useful life

➢ Vehicles have been involved in accidents
➢ Damaged assets that cannot be used by a business anymore
➢ Asset may be obsolete

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7. DISPOSAL OF ASSET

5 STEPS IS DISPOSING OF ASSETS

STEP 1: TAKE OUT THE COST

STEP 2: UPDATE DEPRECIATION

STEP 3: TAKE OUT THE TOTAL ACCUMULATED DEPRECIATION

STEP 4: RECORD THE SELLING PRICE

METHODS OF DISPOSING ASSETS:

METHOD ACCOUNTS EFFECTED

Sold for cash Bank
Sold on credit Debtors Control
Donated Donations
Personal use Drawings

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Traded-in Creditors Control
Scrapped Write off, no payment
Written off due to damages Accrued income/ Insurance claim

Note:
▪ Asset disposal always
credited with the selling price
▪ The rest - debited

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STEP 5: CALCULATED IF YOU MADE A PROFIT OR A LOSS

8. FORMAT – NOTE ON TANGIBLE ASSET

Calculating cost

Calculating accumulated depreciation

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Calculating book value

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9. INTERNAL CONTROL

➢ Purchases of assets should be authorised by management.

➢ All fixed assets should be recorded in a Fixed Asset Register.

➢ Internal auditor ensures that proper records and documentation are in place.

➢ Receipts /invoices should be proof of purchase for insurance and external audit
purpose.

➢ Fixed assets purchased must be labelled / bar coded or a serial number given for
identification and asset verification.

➢ Regular stock taking of assets and comparing against the asset register.

➢ Signing in and out of assets to track to track where they are and who used them.

➢ The movement of assets must be recorded in a logbook, e.g. vehicles

➢ All fixed assets must be insured against fire, theft, etc.

10. ETHICS

➢ Using of business fixed assets for personal gain.

➢ Incorrect recording of kilometres travelled using the business vehicle.

➢ Irregular fuel consumption by certain vehicles used by employees.

➢ Change in depreciation method used to calculate depreciation without informing SARS.

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11. PROBLEM SOLVING

Example

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12. IMPORTANT NOTES

▪ Fixed assets are integrated into:

o Income Statement
o Balance Sheet
o Cash Flow Statement
o Budgets
o Cost Accounting
o VAT

▪ Fixed assets forms part of Paper 1 and Paper 2.

▪ Asset disposal opened and closed on the same day.

▪ Asset disposal is a Balance sheet account or Nominal account.

▪ If asset disposal appears in the Pre-adjustment Trial balance in the Nominal account
section – need to calculate the profit/loss on the sale of asset.

▪ Be aware if the transactions have been recorded or not when taking the information
from the pre-adjustment trial balance.

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