Asset Management
Made Simple
Fixed assets, depreciation, disposal and the asset register - the complete lifecycle explained clearly.
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Book Now →Think of non-current assets as the tools a business owns to do its job - a delivery truck, a machine, office furniture. They are not for sale. They help the business earn money over many years. Unlike stock (which you sell), these assets lose value slowly over time. That slow loss of value is called depreciation.
A non-current asset (also called a fixed asset) is any asset used in the business for MORE than one financial year to generate income. It is NOT bought for resale. Examples: land and buildings, vehicles, machinery, equipment, furniture, computers.
The 5 Key Terms - Learn all of these
Without recording depreciation, the books would overstate what the business is worth. A 10-year-old truck is not worth the same as when it was new. Depreciation keeps the balance sheet honest and matches the cost of using an asset to the years of income it generates.
Imagine you buy a phone for R1 200 and expect it to last 4 years. Straight-line says: spread the cost evenly - R300 per year. Same amount, every year, until the phone reaches its end value. Simple, predictable, consistent.
The 5-Step Method
Worked Example
Cost R240 000. Rate 20% Straight-Line. Bought 1 March 2023. Year-end: 28 February.
Annual depreciation = R240 000 x 20% = R48 000.
| Year | Annual Depreciation | Accumulated Depreciation | Carrying Value |
|---|---|---|---|
| 28 Feb 2024 | R48 000 | R48 000 | R192 000 |
| 28 Feb 2025 | R48 000 | R96 000 | R144 000 |
| 28 Feb 2026 | R48 000 | R144 000 | R96 000 |
| 28 Feb 2027 | R48 000 | R192 000 | R48 000 |
| 28 Feb 2028 | R48 000 | R240 000 | R0 (fully depreciated) |
If an asset was bought mid-year, the first year's depreciation must be apportioned. Count the exact number of months from purchase date to year-end, then multiply: Full Annual Dep x months/12. For example, if the year-end is 28 February and the asset was bought on 1 September, that is 6 months, so multiply by 6/12.
Think of a new car. The moment you drive it off the lot, it loses a big chunk of value. The next year it loses a bit less. The year after, even less. Diminishing balance works the same way - a percentage of whatever is LEFT each year. High depreciation early, lower depreciation later.
Straight-Line
- ✓ Applied to COST PRICE each year
- ✓ Same rand amount every year
- ✓ Amount decreases every year
- ✓ Asset depreciates to zero
- ✓ Best for assets used evenly
Diminishing Balance
- ✓ Applied to CARRYING VALUE each year
- ✓ Amount DECREASES every year
- ✓ Depreciation reduces each year
- ✓ Approaches zero gradually
- ✓ Best for assets that lose value fast early
Worked Example
Cost R120 000. Rate 25% Diminishing Balance.
| Year | CV at Start of Year | Depreciation (25%) | CV at End of Year |
|---|---|---|---|
| 1 | R120 000 | R30 000 | R90 000 |
| 2 | R90 000 | R22 500 | R67 500 |
| 3 | R67 500 | R16 875 | R50 625 |
| 4 | R50 625 | R12 656 | R37 969 |
NEVER apply the DB rate to the cost price after Year 1. From Year 2 onwards, always use the carrying value at the START of that year. The depreciation amount must decrease each year.
When you sell an old car, you need to check what it is worth in the books (carrying value), compare it to what you actually got for it (selling price), and record whether you made a profit or took a loss. Asset disposal is exactly this process, just with journal entries to make it official in the accounting records.
Selling Price > Carrying Value = PROFIT on disposal (you got more than the book value).
Selling Price < Carrying Value = LOSS on disposal (you got less than the book value).
The 5-Step Journal Entry Process
Update depreciation to the disposal date
Bring the asset's depreciation right up to the exact date of disposal. Use part-year if needed.
Dr Depreciation | Cr Accumulated DepreciationRemove the asset at its original cost price
Open the Asset Disposal account and move the full cost price out of the asset account.
Dr Asset Disposal | Cr Asset (at Cost Price)Remove the accumulated depreciation
Move the total accumulated depreciation (up to disposal date) into the disposal account.
Dr Accumulated Depreciation | Cr Asset DisposalRecord the proceeds received
Record what you actually received for the asset (cash or cheque).
Dr Bank | Cr Asset Disposal (at selling price)Close the disposal account
The disposal account must balance. The difference is either a profit or a loss.
PROFIT: Dr Asset Disposal | Cr Profit on DisposalLOSS: Dr Loss on Disposal | Cr Asset Disposal
Worked Example
Bought 1 January 2022 for R180 000. Straight-Line 20% p.a. Sold 30 June 2024 for R88 000.
| Step | Calculation | Amount |
|---|---|---|
| Cost Price | Original purchase price | R180 000 |
| Annual depreciation | R180 000 x 20% | R36 000 per year |
| Dep 2022 (12 months) | R36 000 x 12/12 | R36 000 |
| Dep 2023 (12 months) | R36 000 x 12/12 | R36 000 |
| Dep 2024 (6 months to 30 June) | R36 000 x 6/12 | R18 000 |
| Total Accumulated Depreciation | R90 000 | |
| Carrying Value at disposal | R180 000 - R90 000 | R90 000 |
| Less: Selling Price | Amount received | (R88 000) |
| LOSS ON DISPOSAL | CV exceeds selling price | R2 000 |
The most common disposal mistake is calculating carrying value without first updating depreciation to the disposal date. Step 1 is non-negotiable. If the asset is sold mid-year, you must calculate the part-year depreciation first.
Asset Disposal T-Account (using the worked example above)
| Asset Disposal Account | |
|---|---|
| Dr (Debit side) | Cr (Credit side) |
| Vehicle at cost price R180 000 | Accumulated depreciation R90 000 |
| Loss on disposal R2 000 | Bank (selling price) R88 000 |
| Total R182 000 | Total R182 000 |
The asset enters on the Dr side at full cost price (R180 000). Accumulated depreciation and the selling price come in on the Cr side. Because the Dr side is larger than the Cr side before closing, the balancing figure is a LOSS (R2 000) which goes on the Dr side. If the Cr side had been larger, the balancing figure would be a PROFIT on the Cr side.
Note 3 is the formal disclosure of all non-current assets in the financial statements. It reconciles the carrying value of each asset category from the start of the year to the end, showing every movement in between. Examiners frequently ask you to complete or use this note to find missing figures.
Note 3 shows exactly what happened to each asset category during the year - what came in, what left, how much depreciation was charged. Land and Buildings always get their own column because land is never depreciated. Every column follows the same structure.
The Format
| Description | Land | Buildings | Vehicles | Equipment | Total |
|---|---|---|---|---|---|
| Carrying Value at Beginning of Year | |||||
| Cost price | XXX | XXX | XXX | XXX | XXX |
| Accumulated depreciation | − | (XXX) | (XXX) | (XXX) | (XXX) |
| Carrying value (opening) | XXX | XXX | XXX | XXX | XXX |
| Movements During the Year | |||||
| Additions (at cost price) | XXX | XXX | XXX | XXX | XXX |
| Disposals (at carrying value) | − | (XXX) | (XXX) | (XXX) | (XXX) |
| Depreciation for the year | − | (XXX) | (XXX) | (XXX) | (XXX) |
| Carrying Value at End of Year | |||||
| Cost price | XXX | XXX | XXX | XXX | XXX |
| Accumulated depreciation | − | (XXX) | (XXX) | (XXX) | (XXX) |
| Carrying value (closing) → SFP | XXX | XXX | XXX | XXX | XXX |
Key Rules for Note 3
If the exam gives you an incomplete note, work the formula both ways: at carrying value level AND at cost price level. Between the two you can usually unlock every missing number. Always check your answer by confirming the closing CV total matches the SFP Non-Current Assets figure.
Imagine a school that owns 200 laptops. Without a record of each one, how would they know if one goes missing? The asset register is that record - every asset gets its own entry with all the details. It is the business's inventory list of everything it owns that is not for sale.
The asset register is a detailed record of every individual non-current asset the business owns. Each asset has its own entry. It is used for internal control, insurance purposes, and auditing.
What Each Entry Must Include
Internal Controls for Fixed Assets
Examiners often ask you to complete or update an asset register, or to identify what internal control is missing. Always check that the register includes the method, rate, date of purchase and updated carrying value. Any of these missing is a control weakness.
✗ DB on cost price after Year 1
Applying the diminishing balance rate to the original cost price instead of the carrying value from Year 2 onwards.
✗ Forgetting part-year
Charging a full year's depreciation when an asset was bought or sold mid-year.
✗ Not updating before disposal
Calculating carrying value for disposal without first bringing depreciation up to the exact disposal date.
✗ Annual vs Accumulated confusion
Writing the accumulated depreciation total as the annual depreciation or vice versa.
✗ Disposal account not balancing
Missing one of the four entries in the asset disposal account so it does not close properly.
Even if your final answer is wrong, method marks are awarded for correct steps. Set out your work in clear columns with labels. A depreciation table with correct headings (Year, Annual Dep, Accumulated Dep, Carrying Value) will earn you marks at every step even if you make one arithmetic error.
Quick Reference
Formulas to Know Cold
Carrying Value
CP - Accumulated Dep
Straight-Line
CP x Rate %
Diminishing Bal
CV x Rate %
Part Year
Full Dep x months/12
Profit/Loss
Selling Price - CV
+ = profit, - = loss
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calculations?
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