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An item of plant and machinery was sold within the year for 5,000. The asset cost the

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An item of plant and machinery was sold within the year for £5,000.

The asset cost the company £10,000 over two years ago.

The balances on the cost account and accumulated depreciation account were £118,000 and £18,000.

It is company policy to provide for depreciation in the year of purchase but not in the year of sale. (Two years' depreciation charged at 20 per cent straight line per year had been expensed in relation to this asset.)

Required

Calculate the profit or loss on disposal (show all ledger account entries).

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Bal bd Bal bd P M Plant and Machinery 118000 Asset real ...View the full answer


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Introduction To Financial Accounting

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Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.

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