F3 Chapter 6 Questions, Question 3 of 5

Nnoor939y ago

A company has a year end of 31 January each year. They purchased a car for $12,000 on 1 January 2008 and sold it for $5,000 on 31 March 2012. Their depreciation policy is to charge 20% reducing balance, with a full years charge in the year of purchase and none in the year of sale. What was the profit or loss on the sale of the car ? A. $84.80 (profit) B. $1,067.84 (profit) C. $1,144.00 (loss) D. $1,854.27 (profit) Sir I chose A. $84.80 (profit) as my answer considering the depreciation policy of the company (no depreciation should be charged in the year of sale which is 2012 in this case).But it tells me that B is the right answer. Could you kindly explain it to me where I went wrong ? Thank you.

John MoffatTutor9y ago#1

Their year end is 31 January, so there will be depreciation charged for y/e 31 Jan 2008; 31 Jan 2009; 31 Jan 2010; 31 Jan 2011; and 31 Jan 2012. The year of sale was y/e 31 Jan 2013 and there is no depreciation charged for that year. So....5 years depreciation at 20% reducing balance, which gives a net book value / carrying value of 3,932.16 and therefore a profit on sale of 1,067.84

PPaul4y ago#2

John Moffat wrote:A company has a year end of 31 January each year. They purchased a car for $12,000 on 1 January 2008 and sold it for $5,000 on 31 March 2012.<br>Their depreciation policy is to charge 20% reducing balance, with a full years charge in the year of purchase and none in the year of sale.</blocs Solution?

PPaul4y ago#3

John Moffat wrote:Their year end is 31 January, so there will be depreciation charged for y/e 31 Jan 2008; 31 Jan 2009; 31 Jan 2010; 31 Jan 2011; and 31 Jan 2012. The year of sale was y/e 31 Jan 2013 and there is no depreciation charged for that year.

Can you give solution of this?

John MoffatTutor4y ago#4

I gave the solution in my reply to noor93's post. If you depreciate the cost of $12,000 using 20% reducing balance for 5 years, you get a net book value of $3932.16. The sale proceeds are $5,000 and therefore there is a profit on sale of $5,000 - $3932.16 = $1,067.84.