This scenario takes you through the four steps in disposing of a fixed asset, as well as purchasing an asset and accounting for annual depreciation.

Dunboyne Manufacturing Ltd purchased an item of equipment on the 2nd January 2009 paying €200,000 by cheque.  The equipment has been in use for a number of years and management have taken the decision to discontinue using the equipment.  They sold the equipment on the 1st of December 2013 receiving a cheque for €35,000.

 

Management purchased new equipment on the 3rd of December paying €310,000 by cheque.

 

Annual depreciation is to be provided for on the 31st of December, 20% per annum straight line on year end assets.

 

NOTE:  It is company policy to depreciate ALL equipment 20% per annum straight line, on assets held at the year end (a full years depreciation is charged in the year the asset is bought and none in the year it is sold).