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Julie bought a delivery van at $40,000 with estimated scrap value of $10,000 and useful economic life of 5 years on 1 April 1997, Julie closes her financial year on 31 Dec. She depreciated it by using straight line method depreciating according to the number of months in the first year and no depreciation is charged for the year of disposal.
She sold the delivery van away on 1 Dec 2000 at $27,000, what is the profit or loss on the disposal?The answer is Profit of $3,500, but not sure how to get it?
Depreciation charged yearly= (cost-scrap value)/ no of economic yrs
= (40,000-10,000)/5
=6,000Depreciation for 1st year= (9/12)* 6,000= $4,500 [ since the van was acquired in april and it was held for a period of only 9months in the year of acquisition]
The van was disposed in 2000, therefore depreciation charged for 1st year(1997)= $4,500
Depn for 2nd yr(1998)= 4,500+6,000=$10,500
Depn for 3rd yr(1999)= 10,500+6,000= $16,500
And no depreciation charged in yr 2000(yr of disposal)In the disposal a/c:
You will have Van a/c $40,000 on the debit sideTotal depreciation $16,500 on the credit side
+ Cash Book(proceeds) $27,000
=$43,500The balancing figure (43,500-40,000)=$3,500 goes as profit on the debit side
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