ExpertMedium2 marksMultiple Choice
ACCA · Question 25 · Recording Transactions: Tangible Assets
Section A
DeliveryCo traded in an old van for a new one. The old van originally cost $40,000 and had accumulated depreciation of $28,000. The new van has a list price of $50,000. The dealer gave a part-exchange allowance of $15,000 for the old van, and DeliveryCo paid the remaining $35,000 in cash.
What is the profit or loss on disposal of the old van?
Section A
DeliveryCo traded in an old van for a new one. The old van originally cost $40,000 and had accumulated depreciation of $28,000. The new van has a list price of $50,000. The dealer gave a part-exchange allowance of $15,000 for the old van, and DeliveryCo paid the remaining $35,000 in cash.
What is the profit or loss on disposal of the old van?
Answer options:
A.
$3,000 loss
B.
$3,000 profit
C.
$13,000 loss
D.
$15,000 profit
How to approach this question
Calculate the carrying amount of the old asset. Compare it to the proceeds. In a part-exchange, the part-exchange allowance acts as the proceeds for the old asset.
Full Answer
B.$3,000 profit✓ Correct
Carrying amount of old van = Cost ($40,000) - Accumulated Depreciation ($28,000) = $12,000.
Proceeds from disposal = Part-exchange allowance = $15,000.
Profit on disposal = Proceeds ($15,000) - Carrying amount ($12,000) = $3,000 profit.
Common mistakes
Using the cash paid ($35,000) or the list price ($50,000) in the disposal calculation.
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