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Hi, if we have a car for £10,000 with a residual value of £2,000 and a useful life of 4 years, I would assume the 4 years depreciation would be 4 x £2000 (£10k-2k)/4
What happens if a) the car is still going in year 5? does the depreciation stop or would you charge another year at the end of the period?
b) the car is sold for £3,000 during year 5, is the £3,000 a profit on sale or do you take the residual value off thus it being a £1,000 profit on sale if that makes sense? (I assume there is no residual value account?)If we are using straight line depreciation then it would be 2,000 per year for your example.
If the car was still operating after 4 years then we would continue to depreciate until the written down value becomes zero.
The profit or loss on sale is not the amount of the sale proceeds, but if the difference between the sale proceeds and the written down value.
Have you watched my free lectures on this? 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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