If we buy an asset in year January 20x1, no matter straight line method selected or Reducing balance method. We are applying full year policy by charging depreciation at year of sale but none in year of purchase. We are disposing asset on 1 January 20x3. Our account year is from 1 Jan- 31 Dec.
We compare NBV of asset to get gain or loss on disposal. NBV of which date would be compared here with the sale proceed to find gain or loss on disposal?
(Like I am confused that in full year policy we do not calculate depreciation in year of sale. So here will we consider depreciation of year 20x2 or no?)
Ask the Tutor ACCA FA
Tangible Asset
4y ago#1It is always the NBV at the date of disposal.
There is depreciation for 20X2 because it is not sold until 20X3.
However, other way round, we say that 31 decemeber 20x2 = 1 January 20x3. So if it has given date of disposal as 31 decemeber 20x2 so would we include depreciation for 20x2?
4y ago#3If the company has a policy of not charging depreciation in the year of sale then if it is sold on 31 December 20X2 then there will be no depreciation in 20X2 (assuming obviously that the company has chosen for its year end is 31 December each year).
And we do not say that 31 December = 1 January. They are in different years!
Right tutor.
4y ago#5You are welcome (and do appreciate that although assets with a limited life have to be depreciated, the company can decide to do it any way they want).
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