Depreciation

(BPP) Q)A car was purchased by a newsagent business in May 20X0 for: Cost 10,000 Road tax 150 Total 10,150 The business adopts a date of 31 December as its year end. The car was traded in for a replacement vehicle in August 20X3 at an agreed value of $5,000. It has been depreciated at 25% per annum on the reducing balance method, charging a full year's depreciation in the year of purchase and none in the year of sale. What was the profit or loss on disposal of the vehicle during the year ended December 20X3? $_______ profit. (2 marks) ANS: $781 profit $ Cost 10,000 20X0 Depreciation (25% reducing balance) 2,500 7,500 20X1 Depreciation 1,875 5,625 20X2 Depreciation 1,406 4,219 20X3 Part exchange 5,000 Profit 781 Note. The road tax is an expense. It does not form part of the cost of the car. My doubt here is that, 1)in the year 20X0 the asset should be depreciated for 8/12 months only but its depreciated for the full year. Is it because its mentioned in the question to charge a full year's depreciation in the year of purchase and none in the year of sale? 2) If the depreciation should be charged only in the year of purchase and none in the year of sale, why is it depreciated for all the years until 20X3? Thank You in advance