Riverside Couriers buys a delivery van for $32 000. The company uses straight-line depreciation at 12% of the original value each year. After one year, the ...
Question 1 Report
Riverside Couriers buys a delivery van for $32 000. The company uses straight-line depreciation at 12% of the original value each year. After one year, the business sells the van for $29 100.
(a) Calculate the depreciation charged for the first year. Show your working. [2]
(b) Calculate the net book value of the van after one year. Show your working. [3]
(c) Calculate the profit or loss on disposal of the van. Show your working. [4]
Answer Details
(a) Straight-line depreciation at 12% of the original value means using $32 000, not a reduced value.
\[\$32\,000\times\frac{12}{100}=\$3\,840\]
First-year depreciation is $3 840 [2].
(b) Net book value is the original cost less accumulated depreciation:
\[\$32\,000-\$3\,840=\$28\,160\]
The original value is $32 000 [1], depreciation is $3 840 [1], so the net book value is $28 160 [3].
(c) Compare the sale proceeds with the net book value, not with the original purchase price:
\[\$29\,100-\$28\,160=\$940\]
Sale proceeds are $29 100 [1] and net book value is $28 160 [1]. Since proceeds are higher, this is a profit on disposal of $940 [4].
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