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QUESTION:
Statement of financial position, a sat 31st December,2004:
$000 – $000 – $000Plant and equipment: 21,000(cost) |9,000(accumulated dep)|12,000(carrying value)
Suspense account : 600(carrying value)The following suspense account is available:
a) The balance of the account is the proceeds of sale of some plant on 1 January 2004 with a carrying value at the date of sale of $700,000 and which had originally cost $1,400,000 . No other accounting entries have yet been made for the disposal apart from the cash book entry for the receipt of the proceeds. Depreciation on plant has been charged at 25% (straight line basis) in preparing the draft statement of financial position without allowing for the sale. The depreciation for the year relating to the plant sold should be adjusted for in full.
Problems:
A) How can I calculate proceeds of sale?
B) How the workings of plant and equipment in the statement of financial statement?Sir,
a) the proceeds answer is 600.
b)the workings of plant and equipment:
$000
disposal:
cost 1400
dep (700)
———
carrying value 700
proceeds (600)
———
loss on sale 100cost adjustment= 21000-1400=19600
accumulated dep adjust (9000-700-(1400*25%)=7950please sir, help me to understand those.
1) The question says “The balance of the account is the proceeds of sale”. Since the balance on the suspense account is 600, this is the proceeds of sale.
2) The profit or loss on sale is always the difference between the proceeds and the carrying value (net book value).
3) When an asset is sold, then the cost of the asset sold needs removing from the total cost of all assets; and the accumulated depreciation on the asset sold needs removing from the total accumulated depreciation on all assets.
You should watch the free lectures on depreciation which explain all of this.
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