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DN’s extracts of financial statements for the year ended 31 October 20X6 are as follows:
DN Statement of profit or loss and other comprehensive income for the year to 31 October 20X6:
$000 $000
Profit for the period 650
Comprehensive income:
Revaluation gain 400
____
Total comprehensive income 1,050DN Statement of financial position at:
31 October 20X6 31 October 20X5
$000 $000 $000 $000
Property, plant and equipment 4,942 4,205Additional information:
Plant and equipment sold during the year for $15,000 had originally cost $60,000 five years ago. The plant and equipment were depreciated on the straight line basis over six years. Any gain or loss on disposal has been included in overheads.
Overheads include the annual depreciation charge of $100,000 for property and $230,000 for plant and equipment.
Which TWO of the following amounts would appear in the investing activities section of the Statement of Cash Flows according to IAS 7?
PPE (carrying amount)
B/f 4,205 Depreciation (100 + 230) 330
Additions (balance) 677 Disposal (60 x 1/6) 10
Revaluation gain 400 c/f 4,942
_____ ______
5,282 5,282
_____ ______Can you please explain why disposal is 10
Shouldn’t it be 60,000/6 = 10,000
60 000 – (10,000*5) = 10,000However it was sold for 15,000- 10000= isn’t disposal gain 5000
shouldn’t this value be included in the T account ?
Hi,
You can calculate it the way you’ve done above to get the correct answer, or the alternative way the model answer has done. In the model answer they’re saying that if five years of the asset’s six years have been consumed then there is only one year of the asset’s life left, so they’re taking 1/6th of the original cost to calculate the carrying value.
The gain on disposal is not adjusted for in the T-account. All that is adjusted for in the T-account is to remove the carrying value of the asset. The profit on disposal is calculated in a separate disposal T-account.
Thanks
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