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Gary, a sole trader, purchased a vehicle on 1 January 20X6. The vehicle cost $20,000 and was depreciated on a straight-line basis over four years with no residual value. On 1 January 20X9 Gary part-exchanged the vehicle for a new one costing $25,000. Gary paid cash of $18,000 towards the purchase of the vehicle.
What is the profit on disposal of the old vehicle to be included within the financial statements for the year ended 31 December 20X9?
Please help me with this question, I do not have the answer to double check. The answer i got was $10000. Please explain to me if I’m wrong.
Why are you attempting a question for which you do not have the answer? It is essential that you practice using a Revision Kit from one of the ACCA Approved Publishers – it is full of exam standard questions, together with answers and explanations!! 🙂
Given that they paid $18,000 in cash for the new vehicle, the sale proceeds for the old one was 25,000 – 18,000 = $7,000.
The net book value / carrying value of the old vehicle and the time of sale was 20,000 – (3 x 20,000/4) = $5,000 (since it has been owned for 3 years).
Therefore the profit on sale is 7,000 – 5,000 = $2,000
Of course it does. However if you read again what I wrote, it is 20,000 – (3 x 20,000/4), which is 20,000 – 5,000 which equals 15,000 !!
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