Comments

  1. avatar says

    Thank you Mr Moffat for your thorough explanations. Today I learnt something new by reading through some of the comments here. I had also been used to the profit on sale being listed under other income on the income statement. Even though it has the same effect having it as negative expense under expenses at the end of it all, your explanation about depreciation having been over or under charged makes a lot of sense.

  2. avatar says

    Hi!
    In the sale of noncurrent asset (example 4), can we just have a compound entry ( debit Accumulated depreciation, debit cash, debit loss on sale and credit car) instead of creating the disposal account?

    Many thanks!

    • Profile photo of John Moffat says

      In practice you can certainly have a “compound entry”, although it is more normal to create a separate disposal account (especially if there are lots of separate disposals during the year).

      For the exam it is largely irrelevant anyway because there is not much testing of debits and credits. However, to be safe do make sure you are aware of the disposal account just in case it is mentioned.

  3. avatar says

    Hi there,

    Firstly i would just like to say what great help these videos and the other material you offer is.

    In this video you mention about a book with more information. What is the book or text you are referring too?

    • Profile photo of John Moffat says

      It would still be under expenses, but would appear as a negative expense.

      (The reason is that a profit or loss on sale occurs because the depreciation that had been charged in previous years was either more or less than it would have been if we had known in advance exactly how much we would sell the asset for. So….the profit or loss on sale is really a ‘correction’ to the depreciation charges.)

      • Profile photo of John Moffat says

        Whereas a loss on sale means less profit and it listed as one of our expenses, a profit on sale means more profit.

        However we still show it in the list of expenses, but show it as a negative figure. So, instead of increasing the total of the expenses (which it would if it was a loss), because it is a negative figure it reduced the total of the expenses.

    • Profile photo of John Moffat says

      The Statement of financial position only shows assets, liabilities and capital.

      Since the car no longer belongs to the company, it can not appear on the Statement.

      What will appear is a higher cash balance (or higher receivables it if was sold on credit) than would otherwise have appeared.

  4. avatar says

    11:57 Is that right or am i doing something wrong?

    Disposal Acc
    ————————————————–

    How did you get 1700??? Isit not 800 — – 15,000 – 6500-7700 ???

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