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  2. Hello John. According to your example I have passed mention below entries,

    1. (DR) DEPRECIATION EXPENSE 700
    (CR) ACCUMULATED DEPRECIATION EXPENSE 700
    2. (DR) CASH PROCEEDS 6,500
    (CR) DISPOSAL A/C 6,500
    3. (DR) DISPOSAL A/C 15,000
    (CR) CAR 15,000
    4. (DR) ACCUMULATED DEPRECIATION 7,700
    (CR) DISPOSAL 7,700
    5. (DR) LOSS ON SALE 700
    (CR) DISPOSAL 700

    Please do correct my entries if i am wrong

    Thank U.

    Regards
    SYED.

  3. Hi John,

    Can you help m on this. Do we subtract ‘scrap value’ from the initial cost of an NCA to find the accumulated depreciation of, lets say 3 yrs, using reducing balance method, to find the profit/loss on disposal?

    Thank you in advance.

      • If you watch the previous lectures on depreciation, you will see that we take account of the expected scrap value when calculating depreciation using the straight line method. However, when using the reducing balance method we do not take account of any expected scrap value in the calculation.

    • Yes – provided that you watch all of the lectures and that you also buy a Revision Kit from one of the ACCA approved publishers (they contain lots of exam-standard questions to practice, and practice is vital to passing the exam).

      • There are no books just of past ACCA exams. The Revision Kits contain lots of past questions as well as other exam-standard questions.

        You only need the notes and a Revision Kit (provided that you are not just using the notes on their own but at watching the free lectures that go with them as well).

      • Hi.
        your lectures are wonderful and helped me thank you. I am using the revision kits and i couldn’t understand this question, can you please help me to explain….

        (The trucks account (at cost) of a business for the year ended 31 December 20×1 was as flow.

        20×1 20×1
        $ $
        1jan blance 240,000 31 mar disposal account 60,000
        30june cash-purchase of van 160,000 31 dec blance 340,000
        400,000 400,000

        Brought forward accumulated depreciation at 1 January was 115,000.The truck disposed of on 31 March had a carrying value of $ 20,000.
        The company麓s policy is to charge depreciation at 20% per year on reducing balance, and charge a full year麓s years depreciation in the year of acquisition and non in the year of disposal).
        What should be the depreciation charge for the year ended 31 December 20×1
        A $68,000
        B $57,000
        C $53,000
        D $21,000

  6. Hi John, would we put any gains from the disposal in the P & L Statement under revenue (but keeping it as a separate category under revenue)? Or in the case of a loss from disposal, put it in the P & L Statement as a disposal expense/loss? Sorry if my question doesn’t make sense, im just getting started with accountancy!

      • Opps, i mean SOPL not SOFP. I need to get used to the names of these statements!! Sorry :-O

    • No – you show it under ‘expenses’. If it is a loss then it adds in to the other expenses. If it is a gain then you put brackets round it and it reduced the total of the other expenses.
      (This is because really there is only a gain or loss because the depreciation had not been ‘perfect’ and so it is in a sense correcting the depreciation expenses in the past.)

  7. 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.

    • 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.)

    • 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).

  9. 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?

  10. question 4.

    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?

    • 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.

  12. 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

    • 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

    • 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.

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