Disposal

Question 1

when NCA is sold, what adjustment needs to be made to the SOFP?

Answer 1

the carrying amount needs to be removed from SOFP

Question 2

what does it mean when sales proceeds are greater than CA?

Answer 2

profit on disposal (shown as sundry income in P/L)

Question 3

what does it mean when sales proceeds are less than CA?

Answer 3

Loss on disposal (shown as expense in P/L)

Question 4

what kind of an account is a disposal account?

Answer 4

temporary

Question 5

what are the steps for disposal?

Answer 5

1. remove cost of asset
2. remove accumulated dep charged so far
3. account for sales proceeds
4. balance off disposal a/c to find the P/L balance on disposal

Question 6

double entry: removal cost of asset

Answer 6

Dr Disposal a/c

Cr NCA

Question 7

double entry: remove acc dep charged so far

Answer 7

Dr acc dep

Cr disposal a/c

Question 8

double entry: a/c for sales proceeds

Answer 8

Dr cash

Cr disposal a/c

Question 9

double entry: part exchange allowance offered against cost of replacement asset

Answer 9

Dr new asset cost
Cr disposal a/c

(if relevant, remaining cash paid):
Dr new asset cost
Cr cash

Question 10

for disposals in the long form ques, what workings need to be done?

Answer 10

1. prep journals for disposals/acquisitions
2. add depreciation expense on COS or expense
3. using working to calculate final expense balance and transfer profit to capital section in P&L