Diposal and Deprecaition

JaspearJaspear New MemberPosts: 5Registered
Hi,

Can anyone help me with this question, i am really struggling and going mad!

31st December 2000, a car was sold for £2,500; this was paid for by cheque.

The following information is known.

• The vehicle originally cost £12,000 and was purchased in July 2003.
• Depreciation was charged at 20% straight line.
• The company’s policy is to charge full year depreciation in the year of acquisition and none in the year of disposal.


1. Calculate the accumulated depreciation for the car at the time of disposal.

2. Complete the journal below required recording the financial transactions of the disposal.

Comments

  • Gem7321Gem7321 Experienced Mentor DevonPosts: 1,438MAAT, AAT Licensed Accountant
    I think there's an error in the question if the car was sold in 2000 but only bought in 2003!

    20% straight line basis means 20% of the cost every year, so the depreciation charge each year will be 20% 12000 = 2400

    Accumulated depreciation is the depreciation so far, without knowing the correct dates we can't work this out and we need to know the year end. If we assume the car was bought in December 2000 and sold in July 2003 and the year end is 31 July, then it would be:
    2400 for y/e 31 july 2001 (year of acquisition)
    2400 for y/e 31 july 2002
    nil for y/e 31 july 2003 (year of disposal)
    Accumulated depreciation = 4800

    The Net Book Value of the car at the time of sale, which is the cost - accumulated depreciation = 7200.

    The car was only sold for 2500 so they made a 4700 loss.

    So the journal would be:
    Dr bank 2500
    Cr motor vehicles 12000
    Dr accum depn 4800
    Dr loss on disposal 4700

    I HTH come back if you need help to do it with the correct dates
  • JaspearJaspear New Member Posts: 5Registered
    Hi Gem,

    Yes i have got the question wrong, i have PM you

    Cheers

    Jas
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