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Hello sir,
The question asks what is loss on disposal and I cannot understand where is the loss.
The question goes like this :
1 Jan x7 company dispose of motor vehicle which original cost 12000 when bought on 1 Jan x4 and was being depreciated by 25% straight line basis. However, motor vehicle was traded for new mv which cost 20000 with balance 18400 to pay by cheque
So I reason out like this :
mv x4 = 12000 mv x7 = 3000
so if mv now cost 3000 and is being traded for a new one of 20000 the difference of the new one to pay is 1600 but from 3000 to 18400 where is the loss?or is it the difference between the original cost and new payable cost?
Thank you for your time.
Any profit or loss is the difference between the selling price and the carrying value (net book value).
Because the they only had to pay 18,400 for the new MV, it means that they were effectively selling the old MV for 20,000 – 18,400 = 1,600.
The old MV had been depreciated for 3 years at 25% x 12,000 = 3,000 per year, and therefore the net book value at the time of sale was 12,000 – (3 x 3,000) = 3,000.
So there were selling a MV with a net book value of 3,000 for 1,600. So there is a loss on sale of the difference of 1,400.
The new MV has nothing to do with it.Have you watched my free lectures on this?
Not that hard, could have solved if I concentrated a bit more, the wording confused me, yes I did watch and found them very well explained, thank you.
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