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November 30, 2016 at 9:53 pm
Hi Mr John,
I need your help to solve this question:
accounting year end 30th June, it purchased an item of plant on 1 April 2005 at cost of $15000,at the date of purchase, the item of plant and equipment had an estimated useful life to the business of five years and an estimated residual value of $2000’This item of plant was traded in for a replacement item on 30 September 2008 at an agreed valuation of $5000.it has been depreciated at 20 percent per annum on a straight line basis, with a pro rated charge in the year of acquisition and disposal. Calculate profit or loss on disposal of the item of plant.
John Moffat says
December 1, 2016 at 6:32 am
You must ask questions like this in the Ask the Tutor Forum, and not as a comment on a lecture.
(Also, there must be an answer in the same book in which you found the question, and so you should ask about whatever it is in the answer that you are not clear about – don’t simply expect a full answer to a test question.)
January 3, 2016 at 11:51 am
Can you please tell me where to find correct answers to the questions given in the Notes?
is question 3 is C on page 45? – $ 88 200 CR.
January 3, 2016 at 12:50 pm
If you look at the contents page on the Lecture Notes you will find the answers to tests are listed.
The answer is A. The 88,200 is carried forward to the opposite side so we end up with a debit balance (you should watch the earlier lectures on double entry bookkeeping).
December 2, 2015 at 1:32 am
Sir can you please help me out with this?
At 1 January 2005, Mary has a motor vehicles which cost $15000. On 31 august 2005 she sells a motor vehicle for $5000 which had originally cost $8000 and which had a CV of $4000 at the date of disposal. She purchased a new motor vehicle which cost $10000 on 30 November 2005.
Her policy is to depreciate motor vehicles at a rate of 25%pa on the straight line basis, based on the number of months ownership.
What is the depreciation charge for the year ended 31 December 2005?
December 2, 2015 at 7:17 am
You must ask this question in the Paper F3 Ask the Tutor Forum, and not as a comment on a lecture.
October 21, 2015 at 3:58 pm
1 jan 2000 krin bought a machine 70000. estimated useful life 7 years. and a residual of 7000. two years later the useful life was revised to three remaining years and at 31 december 2003 machine was sold for 30000.
what was the profit on disposal?
how do you go about this one?
October 21, 2015 at 4:51 pm
Initially, the annual depreciation was (70000 – 7000) / 7 = 9,000 a year.
So the value after 2 years (i.e. the end of 2001) will have been 70,000 – (2 x 9000) = 52,000.
The remaining life is revised to 3 years (and the residual value is still 7000 because we are not told different). So the new depreciation will be (52000 – 7000) / 3 = 15,000 a year.
So….at the end of 2003 (which is 2 more years) the value will be 52000 – (2 x 15000) = 22000.
It was sold for 30000, and so there is a profit on sale of 30000 – 22000 = 8000.
September 17, 2015 at 10:27 pm
Absolutely! This method is a lot easier. Thank you sir
September 17, 2015 at 9:51 am
Kindly shed for more light on the answer for this question sir,
The plant and machinery acc at cost of a business for the yr ended 31 Dec 2008 is as follows,
Jan 1 balance. 240000
31 March transfer disposal acc 80000
30 June ,cash purchase of plant 160000
31 Dec balance,340000
Depreciation – 20% per annum on straight line basis with proportionate depreciation in the years of purchase and disposal
September 17, 2015 at 10:49 am
You have copied the question wrong – the disposal is 60,000 (not 80,000)
You can get the answer is several ways. If you don’t understand the answer at the back of the lecture notes, then maybe you will find this way easier:
The cost is 240,000 from 1 Jan to 31 March, 3 months. So the depreciation is 3/12 x 20% x 240,000 = 12,000
Then it falls to 180,000 (240,000 – 60,000) and stays at this from 1 Apr to 30 Jun, 3 months, So the depreciation is 3/12 x 20% x 180,000 = 9,000.
Then it increases to 340,000 (180,000 + 160,000) and stays at this from 1 Jul to 31 Dec, 6 months. So the depreciation is 6/12 x 20% x 340,000 = 34,000
So the total depreciation is 12,000 + 9,000 + 34,000 = 55,000
October 21, 2015 at 3:52 pm
You are welcome 🙂
November 6, 2015 at 8:20 am
sir, i did not understand why you subtracted 240000- 60000 please explain
November 6, 2015 at 5:41 pm
Because there are disposals of 60.000
July 9, 2015 at 4:09 am
so sir if we had a gain
July 9, 2015 at 8:54 am
If the ‘missing figure’ on the disposal account is on the other side then there is a profit on sale instead of a loss.
This appears in the Statement of profit or loss as a negative cost and therefore increases the profit instead of decreases it.
June 29, 2015 at 4:57 pm
Why do we open a disposal account when we are selling off our NCA???
In What heading under disposal account is classified??
June 29, 2015 at 5:36 pm
The disposal account is there in order to be able to calculate the profit or loss on disposal.
The account itself is not classified under any headings. The profit or loss on disposal appears in the Statement of profit or loss under the heading expenses (as is explained in the lectures).
May 22, 2015 at 12:08 pm
Good evening sir. Sir I qualified PIPFA Pakistan institute of public finance accountant. Sir still your lectures are very very good .i really gain knowledge from it. Sir from depth of my heart ? I appreciate your lectures and study material
May 18, 2015 at 7:47 pm
loss/gain on disposal is just NBV – scrap value? is that right?
May 18, 2015 at 9:36 pm
Yes (although it is any sale proceeds rather than scrap value – selling it does not always mean that you are scrapping it).
May 5, 2015 at 9:25 pm
GOOD DAY SIR I DNT KNW IF ITS JUST ME BUT I DIDNT GET 800 CAN U EXPLAIN TO ME PLS HOW U COME BY IT . CAUSE WEN I TOOK 7700-6500 I GOT 1200 N NOT 800. SO NOW IM A BIT CONFUSE PLS HELP
May 5, 2015 at 9:59 pm
Please do not write in capital letters.
I really do not know why you should want to subtract 6,500 from 7,700!!
On the debit side is 15,000 and on the credit side is 7,700 and 6,500. The missing figure to make both sides add up to 15,000 is 800.
I do suggest that you watch the lecture again. I assume you have watched all the previous lectures – if not then you should, there is no point in just watching one lecture on its own.
March 23, 2015 at 2:33 pm
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.
March 12, 2015 at 3:57 pm
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?
March 12, 2015 at 4:06 pm
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.
November 7, 2014 at 6:35 pm
Great explanation,thank you very much 🙂
September 18, 2014 at 10:08 pm
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?
April 29, 2014 at 6:15 pm
if it was a profit on sale – where on the income statement would it be??
April 29, 2014 at 6:25 pm
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.)
October 9, 2014 at 4:05 pm
Please can you explain more what you mean by a negative expense if it was a profit on the sale of the car
October 9, 2014 at 4:18 pm
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.
April 14, 2014 at 2:08 pm
Would the sale of the car ($6,500) show up as an extra item on the Balance sheet – or is it just that the cash would show an increase in current assets?
April 14, 2014 at 4:48 pm
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.
April 14, 2014 at 5:55 pm
Thanks, that makes perfect sense 🙂
September 12, 2013 at 3:13 pm
Please help. I cannot watch lectures on my computer. This is the message i am getting Server not found: rtmpt://r.acca.opentuitioncom.netdna-cdn.com:80/play
September 12, 2013 at 4:24 pm
Install flash or use google chrome
September 13, 2013 at 7:17 am
Thanks Admin. I have used google chrome and its working just fine now. 🙂
April 4, 2014 at 6:00 pm
i cant understand the entries about revaluation nof an asset and disposal of non current asset .please can u help me about this .i am struggling about this but have no solution
April 4, 2014 at 6:40 pm
I do go through the entries in the lecture (and the answers to the examples are at the back of the Course Notes).
If you say which bit of it is causing the problem then I will do my best to help.
August 23, 2013 at 12:13 pm
11:57 Is that right or am i doing something wrong?
How did you get 1700??? Isit not 800 — – 15,000 – 6500-7700 ???
August 23, 2013 at 12:14 pm
Sorry, — My mistake, I should post after the video — Sorry
Mohammad Ibrahim says
April 15, 2013 at 9:08 am
@Admin is there any lecture for revaluation of asset for f3?
April 15, 2013 at 10:36 am
Look in the chapter on company accounts
February 18, 2013 at 9:18 am
November 29, 2012 at 2:42 pm
where can i find the question to this solution.Thanks
September 1, 2012 at 10:11 pm
Same with me!!! I even do work on Friday evenings!!!
Miss A.. says
August 14, 2012 at 3:58 am
June 18, 2012 at 9:34 pm
May 6, 2012 at 11:32 am
i was not interested in my studies coz i wasnt understanding them.but now i am in love with my studies.
thank you very much
August 14, 2012 at 3:57 am
@tahsin143543, me too
September 1, 2012 at 10:12 pm
@tahsin143543, Same with me!!! I even do work on Friday evenings!!!
February 14, 2012 at 5:36 pm
You have shown the Income Statement Extract but i would like to see the Statement of Financial Position extract for this question please.
August 29, 2012 at 9:41 am
@mel2000, Helllo ! 🙂 the extract is through the total net profit (from income statement) to SOFP under Capital & Liabilities section. The NCA-CAR will disappear from the SOFP.
August 29, 2012 at 9:42 am
@alifgan, its Disappear because its not Melns asset anymore.
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