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ACCA Applied Knowledge · Financial Accounting · Tangible non-current assets

Kemp Co sold an asset with cost $50,000 and accumulated depreciation $38,000 for $15,000. In the disposals account, which entries are correct?

Debit cash $15,000 and accumulated depreciation $38,000, and credit asset cost $50,000, with the $3,000 balancing profit shown through the disposals account in profit or loss. Carrying amount was $12,000, so proceeds of $15,000 give a $3,000 profit.

  1. ADr Disposals 50,000; Cr Accumulated depreciation 38,000; Cr Cash 15,000 with profit of $3,000 credited to profit or loss
  2. BDr Disposals 50,000; Dr Accumulated depreciation 38,000; Cr Cash 15,000
  3. CDr Cash 15,000; Dr Accumulated depreciation 38,000; Cr Asset cost 50,000; Cr Profit or loss 3,000 via disposalsCorrect
  4. DDr Cash 15,000; Cr Asset cost 15,000

Explanation

Cash is debited with proceeds of 15,000 and accumulated depreciation is debited 38,000 to remove it. Asset cost is credited 50,000. Carrying amount is 12,000, so the profit is 3,000, credited via the disposals account to profit or loss. Option A reverses the accumulated depreciation entry.

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