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Question 6.3: A business purchased a non-current asset on 1 January 20X1 f...

A business purchased a non-current asset on 1 January 20X1 for $25,000. It had an estimated life of six years and an estimated residual value of $7,000. The asset was eventually sold after three years on 1 January 20X4 to another trader who paid $17,500 for it.
What was the profit or loss on disposal, assuming that the business uses the straight line method for depreciation?

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Annual depreciatio = Annual depreciatio = \frac{\$\left(25,000-7,000\right) }{6  years}=\$3,000 per annum

$
Cost of asset 25,000
Less accumulated depreciation (three years) 9,000
Carrying amount at date of disposal 16,000
Sale price 17,500
Profit on disposal 1,500

This profit will be shown in the income statement of the business where it will be an item of other income, below gross profit.

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