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Dear Tutor, I have a very interesting and confusing question.
You have been provided with the following financial statement extracts for the year to 31 December 2009:
Statement of comprehensive income (extract) $
Depreciation 22,500
Loss on disposal of non-current assets 6,375Statement of financial position (extract)
2009———– 2008
Non-current Assets $ $
Land, PP+E at cost ————————-465,000——405,000
PP+E accumulated depn—————– ( 247,500)—-(283,500)Equity
Revaluation reserve ————————-30,000 —————0PP+E costing $67,500 were disposed of during the year. Land was revalued
during the year.Required:
Calculate the cash paid to acquire PP+E and the proceeds from the disposal of
PP+E in the year.When I solved it I found that sales proceed in diposal t account as a balancing figure is 2625 but there is also sales proceed which is (67500 cv-6375 loss on diposal)=61125. My question why the balancing figure is 2625 not 61125?
I have no idea where you are getting 2625 from.
The carrying value brought forward is 121,600
Add the surplus of revaluation of 30,000, subtract the depreciation for the year of 22,500, subtract the carrying value of the assets sold of 61,125.
This would result in a balance of 67,875.Since the carrying value carried forward is 217,500, it means that the cash paid to acquire new PPE must have been 217,500 – 67,875 =149,625
Presumably you have an answer is the same book in which you found the question – what answer does it give?
This example is LSBF’s financial accounting book and in the answer sheet the solution is below
Imagine it is T account and you see that in the disposal T account proceeds are 2625
—————————–PP+E cost
——————-DR———————–CR
Balance b/f 405,000————— Disposal 67,500
Revaluation gain 30,000
Additions (Bal fig) 97,500——— Balance c/f 465,000
—————————532,500———— 532,500———————-PP+E acc depn
————————–Dr————————Cr
Disposals (Bal fig) 58,500—— Balance b/f 283,500
—————————————Charge for year 22,500
Balance c/f 247,500
———————306,000——————- 306,000————————Disposals
———————————-Dr————–Cr
—————————-Cost 67,500– Accum depn 58,500
———————————————Proceeds (Bal fig) 2,625
———————————————-Loss 6,375
——————————–67,500———————– 67,500
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