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Sommersault Plc bought an asset three years ago costing 230,000. Total useful life estimated at time of recognition was 5 years. After 1 yr of its operation asset was revalued and a surplus was recorded. Current value in the revaluation surplus account is 45,000.
During the yr asset was sold for 180,000.
What is the gain on disposal of asset?I worked it out and got a gain of $880. Could you please try the question and see if that’s correct.
Asset is recorded at a cost of $230,000. Depn under straight line method is 230,000/5 =46,000 per annum.
first year depreciation charged as $46,000.
Qn says, the asset was revalued after 1yr and revaluation surplus $45,000.
Entry is as follows:
Dr.Accumulated Depreciation $46,000
Cr. Revaluation Reserve $45,000
Cr. Asset (balancing figure) $1,000Now, the asset is shown in the books at $230,000 – $1,000 = $229,000. Remaining life 4yrs.
Depreciation = $229,000/4 = $57,250 per annum.
Accumulated depreciation is now zero for this asset.
Depreciation charged as $57,250 in yr2 & yr 3. Now, accumulated depreciation is $57,250 * 2 (for 2 yrs) = $114,500.In the 4th yr, asset is sold.
Entries for disposal.
1)Dr. Disposal a/c $229,000
Cr. Asset $229,0002)Dr. Accumulated Depreciation $114,500
Cr. Disposal a/c $ 114,5003)Dr. Cash/ Bank $180,000
Cr.Disposal a/c $180,0004)Dr.Disposal a/c $65,500
Cr. Gain on Disposal (I/S) $65,500
(balancing figure)I think, u got the answer as $88,000. This is without taking into consideration the revalued amount of the asset for depreciation calculation. Once the asset is revalued, depreciation should be based on the revalued amount.
Hope it helps
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