DISPOSAL OF A FIXED ASSET- REALLY STUCK

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
I really hope someone can help me. We are working on year end 30/09/06.

I have just been looking at a question on the December 2006 Exam paper, question 2.3, where it gave me the following info:

Item equipment sold for £275.00
Original cost of equipment was £500.00
Purchased During year end 30 Sept 2003
Depreciation is provided at 20% on a straight line basis, depre in year of purchase none in the year of disposal.

On the Trial Balance answers it works out £75.00 to go to P&L as a credit why it this ????????????

THANKYOU ZOE

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DISPOSAL OF A FIXED ASSET- REALLY STUCK

    That means you have made a profit of £75 on the asset after taking depreciation into account.

    Depreciation is £100 per year.

    Im assuming that there is 3 yrs depreciation.

    3x100=£300 accumulated depreciation.

    500-300=£200 Net book value of asset

    You have received £275 for it which means you've made a profit of £75 on it.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DISPOSAL OF A FIXED ASSET- REALLY STUCK


    Are you allowing for only two years depreciation instead of three which is what it should be?

    The years for chargeable depreciation are 2002/03, 2003/04 & 2004/05 and we are now in year 2005/06.

    If you do your journals again you should arrive at the £75 credit entry.

    Please see previous responses to similar questions under the hyperlinks below;

    Sale of an asset; http://forums.aat.org.uk/forums/posts/list/15421.page#87764

    Part exchange of an asset; http://forums.aat.org.uk/forums/posts/list/15456.page

    Regards,

    Robert
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DISPOSAL OF A FIXED ASSET- REALLY STUCK

    You've sold equipment with a net book value of £200 (original cost - depreciation) for £275. You've made a gain on the transaction of £75 - this is income so is a credit on the P&L.

    I've some notes on disposals here which might be of use.

    PS. Don't you hate it when other people beat you to it while you're composing an answer :)
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DISPOSAL OF A FIXED ASSET- REALLY STUCK

    THANKYOU ALL FOR YOUR HELP.

    Would this stuck without this forum, good luck for all your exams Zoe

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