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Why is answer is not b? Pls pls help me
A car was purchased by a company in May 20X0 for:
Cost $10,000
Road tax: $150The company adopts a date of 31 Dec as its year end
The car was traded in for a replacement vehicle in August 20X3 at an agreed value of $5000. 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 Dec 20X3?
A. profit $718
B profit $781
C Profit $1788
D profit $1836But the correct answer is B !
Either you have copied the question wrongly or there is a mistake in your book.$10,000 is depreciated for 3 years (X0, X1 and X2) and so the value reduces to $4219.
It is sold for $5,000 and so there is a profit on sale of 5,000 – 4,219 = $781.
oh… then i think the answer provided on the text book is wrong!
I really spent a lot of time on this question. thank you so much
Hi John may I ask you another question regarding to the depreciation?
A non-current asset was disposed of for $2200 during the last accounting year. It had been purchased exactly three years earlier for $5000, with an expected residual value of $500, and had been depreciated on the reducing balance basis, at 20% per annum.
The profit or loss on disposal was ?
I thought on the 1st year, it depreciated (5000-500)*20%=900
on the 2nd year, it depreciated (4500-900)*20%=720
on the 3rd year, depreciated (4500-900-720)*20%=576The carrying amount after 3 year was 4500-900-720-576=2304
therefore, there was loss ($104) on disposal.But this is wrong. pls correct me…thanks;)
With reducing balance depreciation, we do not subtract the residual value. The residual value is only relevant when using straight-line depreciation.
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