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Profit after replacement of asset

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Profit after replacement of asset

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • July 13, 2023 at 5:43 pm #687945
    Areesha1810
    Participant
    • Topics: 3
    • Replies: 5
    • ☆

    Sir, I have a doubt regarding this question (from Kaplan), please help me out.

    —Question—
    A business has an accounting year end of 30 June. It purchased an item of plant on 1 April 20X5 as follows:
    Cost $15000
    3 year maintenance agreement $450
    Total $15450

    At the date of purchase, the item of plant and equipment had an estimated useful life to the business of five years and an estimated residual value of $2,000. This item of plant was traded in for a replacement item on 30 September 20X8 at an agreed valuation of $5,000.
    It has been depreciated at 20% per annum on a straight-line basis, with a pro-rated charge in the year of acquisition and disposal.
    Calculate the profit or loss on disposal of the item of plant.
    $ Profit / loss* * Delete which does not apply

    —-What I did—

    I did this- 15000 x 20% =3000 = depreciation per year,

    Depreciation as on-

    30 June 20X5- 750 (3 months APR to June)
    30 June 20X6- 3k
    30 June 20X7- 3k
    30 June 20X8- 3k
    30 Sep 20X8- 750 (3 months June to sep)

    Accumulated depreciation= 10500
    Carrying Amount= 15000-10500 = 4500

    So profit as =5000 – 4500 = 500 (profit)

    I am not understanding how the answer is 900 loss.
    And how did they calculate 9100 as accumulated depreciation. Please tell me what I am doing wrong in the above calculation

    July 14, 2023 at 8:18 am #687960
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54664
    • ☆☆☆☆☆

    It is because you have ignored the expected residual value of $2,000.

    Because it is straight line depreciation, the charge per year is (15,000 – 2,000) /5 = 2,600
    (or (15,000 – 2,000) x 20% = 2,600)

    They owned it in total for 3.5 years, and so the total depreciation is 3.5 x 2,600 = $9,100.

    July 14, 2023 at 11:56 am #687970
    Areesha1810
    Participant
    • Topics: 3
    • Replies: 5
    • ☆

    Oh so that’s what I was doing wrong!
    I have spent half an hour trying to figure this out and u solved this in a minute.
    Thank you so much sir. You’re amazing.
    Have a great day 🙂

    July 15, 2023 at 10:03 am #688009
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54664
    • ☆☆☆☆☆

    You have a great day also 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Profit after replacement of asset’ is closed to new replies.

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