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Looking at the amended version in BPP. Too long to type so key parts are:
The company policy for ALL depreciation is that it is charged to cost of sales and a full year’s charge is made in the yr. of acq’n ……
Included in Sales revenue is $300,000 being sale proceeds of an item of plant sold in Jan. Plant orig. cost $900,000 and had been depreciated by $630,000 at date of sale. Other than recording proceeds in sales and cash no other accounting entries have been made. All plant is depreciated @25% on reducing balance.
I correctly calculated the Profit on disposal as $30,000 but the answer DEDUCTS this amount from Cost of Sales and this is where I’m confused….why did they deduct it?????
Maybe because it’s a profit on disposal – if it had been a loss on disposal, that would have represented an additional expense. Agreed? So a loss on disposal would have been added to cost of sales. Therefore, a profit on disposal should be ……..
Need I go further?
Post again if you are still confused
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