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The balances below have been extracted from the accounting records of Donaldson Ltd at 31 December 2022:
Vehicles: cost $568,000
Vehicles: accumulated depreciation at 1 January 2022 $264,000You are given the following information
iii. On 1 February 2022, the company sold a vehicle for £20,000. While the proceeds of sale were credited to the Disposal account, no other entries were made in the books of account in relation to this transaction. The vehicle had cost £88,000 in August 2019. The company charges a full year’s depreciation in the year of acquisition and no depreciation in the year of disposal.
iv. The company’s depreciation policy is as follows:
Vehicles: 25% straight line.What is the gain/loss on disposal on the income statement?
the answer given was 22,000-20,000 = 2,000
how to achieve the 22,000?
The vehicle cost 88,000 and so the depreciation is 25% x 88,000 = 22,000 per year.
At the date of sale there will have been 3 years of depreciation (years ending 31.12.2019, 2020, and 2021).
Therefore the carrying value as at the date of sale was 88,000 – (3 x 22,000) = 22,000.
Have you watched my free lectures on depreciation? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
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