Comments

  1. avatar says

    hey John,

    On Example 1, while preparing cashflows from operating activities, we are removing the profit on sale of Non-current asset from the operating profit. however, this profit was not included in the statement of profit and loss as i thought it would be disclosed under other incomes just after the gross profit but since it is not, where else would it have been included? please help. thanks.

    • Profile photo of John Moffat says

      Profit on sale does not appear as other income.
      What happens is that any profit or loss on sale appears under the same heading as would the depreciation on the asset (so, for example, it is were a delivery van then it would appear under ‘selling and distribution expenses’). It it is a loss on sale then it is an extra expense, if it is a profit on sale then it is a negative expense.

      (The reason is that they are not really profits or losses – they occur because we have either charged too much depreciation in the past, or charged too much depreciation. It is really a ‘correction’ to the depreciation that has been charged.)

  2. avatar says

    sir in the second adjustment-During the year there had been sales of non current assets for 30,000.the assets sold had orginally cost 50,000 and had a net book value of 20,000.
    here u credited the netbook value amount of 20000 in the NCA a/c

    this one from bpp,Fixtures and fittings with an original cost of 85000 and a carrying amount of 45,000 were sold for 32,000 during the year.in the bpp text book the NCA A/c has credited the original cost of 85,000
    does net book value and carrying value mean the same?

    • Profile photo of John Moffat says

      Yes – carrying value means the same as net book value.

      In the example in the lecture we only had the brought forward carrying value (not the cost and accumulated depreciation separately) and so needed to remove the carrying value of the asset sold.
      If, on the other hand, we have the cost and accumulated depreciation given separately then we remove the cost and the accumulated depreciation on the asset sold separately as well.

  3. avatar says

    Dear Sir,
    I am having trouble understanding why is depreciation entry at 5:27 in the NCA account? I thought we have separate account for depreciation and accumulated depreciation.
    Many thanks,
    MK

    • Profile photo of John Moffat says

      The the ledger there will be accounts for cost, accumulated depreciation, and depreciation expense.
      However, on the statement of financial position we show the net book value (cost less accumulated depreciation) and in this example we do not know the cost and accumulated depreciation separately (and we do not need to know them).

      Because we know the net book value at the beginning and end of the year, we need to sort out why this changed. It changed because we bought some, it changed because we sold some, and it changed because the depreciated this year. This years depreciation charge will appear as an expense in the Income statement and will also reduce the net book value (because it increases the accumulated depreciation).

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