A motor vehicle is shown in the statement of financial position at its cost of $30 000 less accumulated depreciation of $12 000. $ Motor vehicle at cost 30 ...
Question 1 Report
A motor vehicle is shown in the statement of financial position at its cost of $30 000 less accumulated depreciation of $12 000.
| $ | |
|---|---|
| Motor vehicle at cost | 30 000 |
| Provision for depreciation | 12 000 |
Answer Details
The correct answer is $18 000 (net book value).
Under the going concern concept, the business is assumed to continue operating and using its assets in the normal course of business. Assets are therefore shown at their net book value (cost less accumulated depreciation), not at their resale or break-up value. The calculation is: $30 000 - $12 000 = $18 000.
$30 000 (original cost) ignores depreciation, which reflects the consumption of the asset's economic benefits over time. $12 000 (depreciation to date) is only the accumulated depreciation, not the carrying amount. Its current market or resale value would only be relevant if the going concern assumption did not apply and the business intended to sell the asset.
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