The document discusses the end of an asset's useful life. It explains that when an asset is disposed of at the end of its useful life, it is either sold for cash or traded in for credit towards a new asset. The amount the asset is sold or traded for should be equal to its carrying value on the balance sheet. The carrying value represents the portion of the asset's historical cost that remains unused or unexpired and therefore the future economic benefits still available to a new owner.

1. 17.3
THE END OF AN ASSET’S
“USEFUL LIFE”

2. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
17.3 THE END OF AN ASSET’S
“USEFUL LIFE”
 In the Balance Sheet:
 Historical cost: the original “cost” of the asset
 Accumulated depreciation: the total amount of depreciation
charged (economic benefits consumed) during the life of the
asset so far
 Carrying value: the historical cost less the accumulated
depreciation
The purchase (invoice) price of the asset – or its agreed value
• Any costs required to get it in a capacity and location to earn revenue
• Which will provide an economic benefit for the life of the asset
Balance Sheet (Extract) as at 30 June…
2015 2016 2017 2018
Non-Current Assets
Vehicle 40000 40000 40000 40000
less Accumulated depreciation 5000 10000 15000 20000
Carrying value 35000 30000 25000 20000
Balance Sheet (Extract) as at 30 June…
2015 2016 2017 2018
Non-Current Assets
Vehicle 40000 40000 40000 40000
less Accumulated depreciation 5000 10000 15000 20000
Carrying value 35000 30000 25000 20000
Balance Sheet (Extract) as at 30 June…
2015 2016 2017 2018
Non-Current Assets
Vehicle 40000 40000 40000 40000
less Accumulated depreciation 5000 10000 15000 20000
Carrying value 35000 30000 25000 20000
Balance Sheet (Extract) as at 30 June…
2015 2016 2017 2018
Non-Current Assets
Vehicle 40000 40000 40000 40000
less Accumulated depreciation 5000 10000 15000 20000
Carrying value 35000 30000 25000 20000

3. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 The Carrying Value of a Non-Current Asset represents…
 The value of the Non-Current Asset yet to be depreciated
 The amount of the Non-Current Asset that has not been “used up” yet
 The cost of the Asset still being “carried” by the business
17.3 THE END OF AN ASSET’S
“USEFUL LIFE”
Balance Sheet (Extract) as at 30 June…
2015 2016 2017 2018
Non-Current Assets
Vehicle 40000 40000 40000 40000
less Accumulated depreciation 5000 10000 15000 20000
Carrying value 35000 30000 25000 20000

4. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
17.3 THE END OF AN ASSET’S
“USEFUL LIFE”
35,000
30,000
25,000
20,000
5,000
10,000
15,000
20,000
2015 2016 2017 2018
Balance Sheet (Extract) as at 30 June…
2015 2016 2017 2018
Non-Current Assets
Vehicle 40000 40000 40000 40000
less Accumulated depreciation 5000 10000 15000 20000
Carrying value 35000 30000 25000 20000
Balance Sheet (Extract) as at 30 June…
2015 2016 2017 2018
Non-Current Assets
Vehicle 40000 40000 40000 40000
less Accumulated depreciation 5000 10000 15000 20000
Carrying value 35000 30000 25000 20000
Balance Sheet (Extract) as at 30 June…
2015 2016 2017 2018
Non-Current Assets
Vehicle 40000 40000 40000 40000
less Accumulated depreciation 5000 10000 15000 20000
Carrying value 35000 30000 25000 20000
Balance Sheet (Extract) as at 30 June…
2015 2016 2017 2018
Non-Current Assets
Vehicle 40000 40000 40000 40000
less Accumulated depreciation 5000 10000 15000 20000
Carrying value 35000 30000 25000 20000
Balance Sheet (Extract) as at 30 June…
2015 2016 2017 2018
Non-Current Assets
Vehicle 40000 40000 40000 40000
less Accumulated depreciation 5000 10000 15000 20000
Carrying value 35000 30000 25000 20000

5. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
25,000
20,000
15,000
20,000
-
40,000
2017 2018
Accumulated Depreciation
• The used part of the asset
Carrying Value
• The unused part of the
asset
• The future economic
benefits the asset will
provide
17.3 THE END OF AN ASSET’S
“USEFUL LIFE”
EXPENSE
ASSET
What do we do with
these “left over”
unused economic
benefits?

6. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 A non-current asset will be disposed of at the end of its useful
life by either:
 Selling the asset for cash
 Trading in the asset for credit
 Throwing it out if it’s residual value is $0
17.3 THE END OF AN ASSET’S
“USEFUL LIFE”
Not in
VCE Accounting

7. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 A non-current asset will be disposed of at the end of its useful
life by either:
 Selling the asset for cash
Old vehicle
Sold for $10,000
17.3 THE END OF AN ASSET’S
“USEFUL LIFE”
Business Buyer

8. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 A non-current asset will be disposed of at the end of its useful
life by either:
 Trading in the asset for credit
Business owes…
New car (plus GST) $27,500
less Trade-in allowance $1,000
Balance $26,500
Trade-in allowance
$1,000
New car
$25,000 (plus GST)
17.3 THE END OF AN ASSET’S
“USEFUL LIFE”
Business Car Dealer
Business owes…
New car (plus GST) $27,500
less Trade-in allowance $1,000
Balance $26,500
Business owes…
New car (plus GST) $27,500
less Trade-in allowance $1,000
Balance $26,500

9. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 When a non-current asset is disposed of, how do we figure out the
amount to sell or trade-in the asset for?
 E.g. a vehicle was purchased on 1 January 2015…
 Cost = $15,000
 Estimated useful life = 3 years
 Estimated residual value = $3,000
0 1 2 3
Depreciation expense =
ResidualCost -
Useful Life
= $4,000
Cost
$15,000
$4,000 $4,000 $4,000
Carrying
Value
$11,000
Carrying
Value
$7,000
Carrying
Value
$3,000
17.3 THE END OF AN ASSET’S
“USEFUL LIFE”

10. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
0 1 2 3
Cost
$15,000
$4,000 $4,000 $4,000
Carrying
Value
$11,000
Carrying
Value
$7,000
Carrying
Value
$3,000
11,000
7,000
3,000
4,000
8,000
12,000
Year 1 Year 2 Year 3
17.3 THE END OF AN ASSET’S
“USEFUL LIFE”

11. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
11,000
7,000
3,000
4,000
8,000
12,000
Year 1 Year 2 Year 3
17.3 THE END OF AN ASSET’S
“USEFUL LIFE”
Accumulated Depreciation
• The used part of the asset
Carrying Value
• The unused part of the
asset
• The future economic
benefits the asset will
provide
EXPENSE
ASSET

12. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
How much
should the
Asset be
sold or
traded-in
for here?
How much
should the
Asset be
sold or
traded-in
for here?
How much
should the
Asset be
sold or
traded-in
for here?
17.3 THE END OF AN ASSET’S
“USEFUL LIFE”
0 1 2 3
Cost
$15,000
$4,000 $4,000 $4,000
Carrying
Value
$11,000
Carrying
Value
$7,000
Carrying
Value
$3,000

13. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
Why should the
firm expect to sell
or trade in the
asset for $7,000
here?
Because the carrying value of
$7,000 represents:
• The amount unused of the
asset
• The future economic
benefits for the next buyer
of the asset
17.3 THE END OF AN ASSET’S
“USEFUL LIFE”
0 1 2 3
Cost
$15,000
$4,000 $4,000 $4,000
Carrying
Value
$11,000
Carrying
Value
$7,000
Carrying
Value
$3,000

14. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
TASK
In-class Homework
SQ9 X
SQ10 X