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gain on disposal

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › gain on disposal

  • This topic has 3 replies, 2 voices, and was last updated 3 weeks ago by P2-D2.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • December 25, 2022 at 11:09 am #675089
    linda268
    Participant
    • Topics: 2
    • Replies: 1
    • ☆

    Hedges plc, a clothing retailer, depreciates all vehicles monthly over four years. On 31 December 20X4 Hedges plc bought a car at a cost of £21,000 plus VAT, trading in an old car that had cost £17,760 including VAT on 1 December 20X2. A cheque for £11,900 was also handed over.
    In respect of this disposal in its statement of profit or loss for the reporting period ended 31 October 20X5 Hedges plc will show a profit of:

    £4,790
    £4,415
    £590
    £2,008
    hello, can u help me this exercise ? Thank u !

    December 30, 2022 at 8:15 am #675187
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6440
    • ☆☆☆☆☆

    Hi,

    I can help if you show me your attempt at answering the question first.

    Firstly you need to work out the total cost of the asset by adding on the VAT, i.e 17,760 plus VAT. You then depreciate this amount up to the date the car was traded in.

    The gain on the disposal is the part exchange allowance less the carrying value of the old asset being sold/exchanged. To get the part exchange allowance then you are looking at the difference between the cash paid of 11,900 and the total cost of the new car.

    Have a go and see how you get on.

    Thanks.

    December 31, 2022 at 6:59 am #675249
    linda268
    Participant
    • Topics: 2
    • Replies: 1
    • ☆

    hello, i think that the cost of new car is 21000 x 1.2 = 25200 and the part exchange allowance is 25200 – 11900 = 13300
    The carrying value of the old car is 17760 – 17760/4 x 3 = 4440, so the gain on sale of old car is 13300 – 4440 = 8860
    Is my answer corect ?
    Thank u!

    January 1, 2023 at 10:38 am #675273
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6440
    • ☆☆☆☆☆

    I don’t think the answer is correct as it isn’t one of the options. I think you have the cost of the new car correct and the part exchange allowance correct too, so a great start.

    I think you need to look at the depreciation on the old car. It was purchased on 1 December 20X2 and exchanged on 31 December 20X4.

    Thanks.

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