A company purchased an asset on 1 January 20X4 at a cost of $250,000. It is depreciated over 50 years by the straight line method (nil residual value), with a proportionate charge for depreciation in the year of acquisition and the year of disposal. At 31 December 20X5 the asset was re-valued to $300,000. There was no change in the expected useful life of the asset.
The asset was sold on 30 June 20X6 for $298,750.
What profit or loss on disposal of the asset will be reported in the statement of profit or loss of the company for the year ended 31 December 20X6?
Answer
Annual depreciation was initially $250,000/50 years = $5,000.
After revaluation, annual depreciation is $300,000/48 years = $6,250.
| $ | |
| Valuation, 1 January 20X6 | 300,000 |
| Accumulated depreciation to 30 June 20X6 (6/12 x $6,250 ) | 3,125 |
| Carrying amount at 30 June 20X6 | 296,875 |
| Sale/disposal price | 298,750 |
| Profit on disposal in statement of profit or loss | 1,875 |
Note: The balance on the revaluation surplus at 30 June will be transferred to realised profits (retained profits reserve), but this will not be reported as profit in the statement of profit or loss.