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.
- AuthorPosts
- July 13, 2023 at 5:43 pm #687945
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 $15450At 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 = 4500So 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 calculationJuly 14, 2023 at 8:18 am #687960It 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 #687970Oh 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 #688009You have a great day also 🙂
- AuthorPosts
- The topic ‘Profit after replacement of asset’ is closed to new replies.