I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

 

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The business uses the straight line method of depreciation. What was the profit or loss on disposal of  

the machine? 

Solution

 

Annual depreciation 

_

$(35,000  3,000)

8 years

 = $4,000 per annum 

It is assumed that in 20X1 only six months' depreciation was charged, because the asset was purchased 

six months into the year. 

 

 

$    

 

$     

Non-current asset at cost 

 

 

35,000 

Depreciation in 20X1 (½ year) 

 

2,000 

 

20X2, 20X3 and 20X4 

 

12,000 

 

Accumulated depreciation 

 

 

14,000 

Carrying amount at date of disposal 

 

 

21,000 

Sale price 

 

18,600 

 

Costs incurred in making the sale 

 

 (1,200) 

 

Net sale price 

 

 

17,400 

Loss on disposal 

 

 

 (3,600) 

This loss will be shown as an expense in the statement of profit or loss of the business, below gross 

profit.  

6.5 The disposal of non-current assets: ledger accounting entries 

We have already seen how the profit or loss on disposal of a non-current asset should be computed. A 

profit on disposal is an item of 'other income' in the statement of profit or loss, and a loss on disposal is 

an item of expense in the statement of profit or loss. 

It is customary in ledger accounting to record the disposal of non-current assets in a disposal of non-