Profit or loss from fixed asset exchange ( video below)

A car was purchased by a newsagent business in June 20X3 for:

$

Cost                40,000

Road tax              600

Total               40,600

The business adopts a date of 31 December as its year end.

The car was traded in for a replacement vehicle in April 20X6 at an agreed value of $20,000.

It has been depreciated at 25% per annum on the reducing balance method, charging a full year’s depreciation in the year of purchase and none in the year of sale.

What was the profit or loss on disposal of the vehicle during the year ended December 20X6?

Answer

$

Cost   40,000

20X3 Depreciation   (10,000)

.                                     30,000

20X4 Depreciation     (7,500 )

.                                     22,500

20X5 Depreciation      (5,625)

.                                     16,875

20X6 Part exchange   20,000 

Profit                                3,125 

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