CDE purchased a vehicle for HK$75,000 on 1 January 20X1 as part of the salary package of one of its senior managers. In line with its accounting policy, the vehicle was depreciated on a straight-line basis using an estimated useful life of five years and a residual value 20% of its cost. On 31 December 20X3, the vehicle was sold for HK$35,000. The senior manager who had been given the car was embarrassed to observe the loss arising from the sale of his vehicle. "If only we had depreciated the vehicle under the diminishing balance method at a rate of 25%. We might have made a gain on the sale instead of a loss. 

 Required:

 (a) Prepare the entries to account for the derecognition of the vehicle on the date of disposal. 

(b) Prepare the entry to account for the derecognition of the vehicle if the diminishing balance method at a rate of 25% had been used. 

(c) Explain which of the two methods would have had the more favourable impact on profit or loss over the three years. 

Answer rating: 100% (QA)

SOLUTION a To account for the derecognition of the vehicle on the date of disposal using the straightline depreciation method we need to record the de... View the full answer