ExpertEasy2 marksMultiple Choice
ACCA · Question 19 · Recording Transactions: Tangible Assets
Section A
A company disposes of a delivery van. The van originally cost $30,000 and had accumulated depreciation of $18,000 at the date of disposal. The van was traded in for a new model. The new van has a list price of $40,000, and the dealer gave a part-exchange allowance of $15,000 for the old van. What is the profit or loss on disposal of the old van?
Section A
A company disposes of a delivery van. The van originally cost $30,000 and had accumulated depreciation of $18,000 at the date of disposal. The van was traded in for a new model. The new van has a list price of $40,000, and the dealer gave a part-exchange allowance of $15,000 for the old van. What is the profit or loss on disposal of the old van?
Answer options:
A.
$3,000 loss
B.
$3,000 profit
C.
$15,000 profit
D.
$5,000 loss
How to approach this question
1. Calculate the carrying amount of the old asset: Cost - Accumulated Depreciation. 2. Identify the disposal proceeds (in a part-exchange, the proceeds equal the trade-in allowance). 3. Compare Proceeds to Carrying Amount. If Proceeds > CA, it's a profit.
Full Answer
B.$3,000 profit✓ Correct
The carrying amount of the old van is $30,000 - $18,000 = $12,000. The disposal proceeds are represented by the part-exchange allowance of $15,000. Since the proceeds ($15,000) exceed the carrying amount ($12,000), there is a profit on disposal of $3,000.
Common mistakes
Using the list price of the new van in the disposal calculation.
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