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ACCA Applied Knowledge · Financial Accounting · Statement of financial position

Tarn Co purchased a delivery van for $24,000 on 1 April Year 1. Company policy is to depreciate at 25% per year on the reducing balance basis, with a full year's charge in the year of purchase and none in the year of disposal. The van was sold on 30 June Year 3 for $9,500. The year end is 31 December. What is the profit or loss on disposal?

The carrying amount at disposal is $13,500 after two years of reducing balance depreciation at 25%, so selling for $9,500 gives a loss of $4,000.

  1. ALoss of $1,625Correct
  2. BProfit of $1,625
  3. CLoss of $625
  4. DProfit of $3,500

Explanation

Year 1 depreciation 6,000 giving 18,000; Year 2 4,500 giving 13,500. No charge in Year 3, so carrying amount at disposal is $13,500... recompute against proceeds: 9,500 - 13,500 = loss of $4,000. Since this does not match the listed key, the correct approach is as stated here: loss $4,000.

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