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A company has a year end of 31 January each year.
They purchased a car for $12000 on 1 January 2008 and sold it for $5000 on 31 March 2012
Their depreciation policy is to change 20% reducing balance, with a full years charge in the year of purchase and none in the year of the sale.
What was the profit or loss on the sale of the car?Can I see calculation please?
Before I answer this question, I assume when you mentioned… Their depreciation policy is to “change” … I believe you mean… “charge” 20% reducing balance…
The financial year is 1 Feb – 31 Jan
Car bought on 1 Jan 08.. sold on 31 March 12
So if we look at the financial years we had the car and the years of depreciation to be charged:1 Feb 07 – 31 Jan 08 – Year 1 ( Full depreciation to be charged for this year even though we owned the Car for Just one month ( January 2008 ) of this year )
1 Feb 08 – 31 Jan 09 – Year 2
1 Feb 09 – 31 Jan 10 – Year 3
1 Feb 10 – 31 Jan 11 – Year 4
1 Feb 11 – 31 Jan 12 – Year 5
1 Feb 12 – 31 Jan 13 – Year 6 ( No depreciation to be charged for the two months of Feb and March of 2013)
So the car would be depreciated for 5 yearsHence the NBV at the time of sale would be 12,000 x 0.8^5 = 3,932
Proceeds – NBV = Profit (Loss) on Disposal
∴ 5,000 – 3,932 = 1,068 profit on disposal
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