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Flashcards in Non-current Assets Deck (7)
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1
Q

How do you find gain or loss on sale of non-current asset?

A

Find the net book value of non-current asset.
(Original cost - accumulated depreciation)
To find the gain/loss, take the sales proceed minus the net book value.

In general, (sales proceeds) - (original cost - accumulated depreciation)

2
Q

What is the journal entry for loss on sale of ‘non-current assets’?

A

Dr: Profit and Loss
Cr: Sale of non-current assets

For profit, you need to do the opposite.

3
Q

What particulars are needed in a sale of non-current asset account?

A

Particulars required:

  • ‘non-current asset’ e.g: Motor vehicles
  • accumulated depreciation of ‘non-current asset’
  • cash at bank/cash in hand/other receivable:—
  • profit & loss

The Account Is Always Debit-in Nature
Depending on the end balance, you will know if it’s a gain or loss.
Debit balance = Loss on sale of NCA (Expense)
Credit balance = Gain on sale of NCA (Income)

4
Q

How do you prepare an Income statement for this topic?

A

Depending on the Gain/Loss on sale of NCA.

If it is Gain on sale of non-current assets:
Add: Other income $
Gain on sale of non-current assets —

If it is Loss on sale of non-current assets:
Less: expenses $
Loss on sale of non-current assets —
Depreciation expense —

5
Q

If a question states that, “A full year’s depreciation is charged in the year of purchase and none in the year of sale.”
Do you:
(a) Depreciate all the years, except for the year u sold
(b) Depreciate all of the years
(c) Depreciate for one year

A

Answer is (a). The sentence has stated that it’s a full year depreciation, which means that you don’t have to count for the months you have used. The sentence also said that “none in the year of sale.” which means that, you are not required to depreciate in the year of sale. Plus you also do not have the thing after you sold iy, so why depreciate a full year’s amount, right?

6
Q

An example: Abbey has the following office equipments as at 1 January 2017. They are depreciated at 20% per annum using the reduce balance method. A full year’s depreciation is charged in the year of purchase and none in the year of sale. Year end is 31 December.

She has 5 desktops. Total cost of office equipment is $500,000. Accumulated depreciation is $100,000.

Additional information:
She decided to sell one desktop on 31 July 2017 for $25000 by cheque.

Desktop one information:
Purchase date: 1 March 2015
Cost: $100,000
(a) Calculate the accumulated depreciation of desktop sold.
(b) What is the total cost of remaining of Office Equipments?
(c) What is the accumulated depreciation of remaining office equipment?
(d) What is the depreciation of the remaining office equipment?

A

(a): Total accumulated depreciation is $36,000.
Working: 1 Mar 2015 to 31 Dec 2017
1 Mar 2015 to 31 Dec 2015 = 20%(100000)
= 20000
1 Jan 2016 to 31 Dec 2016 = 20%(100000 - 20000) = 16000
1 Jan 2017 to 31 Dec 2017 = Not required, as the question stated that there is no depreciation in the year of sale.

Total accumulated depreciation is $20,000 + $16,000 = $36,000

(b) Total cost of remaining office equipment = $400,000
Total cost of remaining office equipment = Total office equipment - cost of sold office equipment = $500,000 - $100,000 = $400,000

(c) Accumulated depreciation of remaining office equipment = $64,000

Accumulated depreciation of remaining office equipment = Total accumulated depreciation of office equipment - accumulated depreciation of sold office equipment = $100,000 - $36,000 = $64,000

(d) Depreciation of remaining office equipment = $67200

Depreciation of remaining office equipment = 20%($400,000 - $64000) = $67200

7
Q

Definition of Scrap value:

A

Value of an asset after it has come to the end of its useful life.