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ACCA Applied Knowledge · Financial Accounting · Statement of profit or loss and other comprehensive income

Harlow Ltd depreciates equipment at 20% per year on the reducing balance method, with a full year's charge in the year of purchase and none in the year of disposal. At 1 January 20X3 equipment had cost $100,000 with accumulated depreciation of $36,000. During 20X3 an item that cost $30,000 on 1 January 20X1 was sold for $15,000, and new equipment costing $40,000 was bought in the year. What is the net amount (depreciation charge plus loss or minus gain on disposal) charged in profit or loss for 20X3?

The net charge is $21,160 on this working, which does not match the marked option, so this question is flawed.

  1. A$21,520Correct
  2. B$19,200
  3. C$22,400
  4. D$20,320

Explanation

Disposed item: depreciation 20X1 = 6,000, 20X2 = 20% x 24,000 = 4,800, so accumulated 10,800 and carrying amount 19,200. Loss = 19,200 - 15,000 = 4,200. Remaining opening: cost 70,000, accumulated 25,200, carrying amount 44,800; depreciation 20% = 8,960. New equipment: 20% x 40,000 = 8,000. Depreciation = 16,960, plus loss 4,200 = $21,160. Re-check: 16,960 + 4,200 = 21,160, so option 1 is wrong as stated.

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