An asset was bought on 1st January, 1995 for N60,000. Depreciation was provided for annually at 20% on cost. It was sold for N21,000 on 30th October 1998. D...

An asset was bought on 1st January, 1995 for N60,000. Depreciation was provided for annually at 20% on cost. It was sold for N21,000 on 30th October 1998. Depreciation is charged fully in the year of disposal. Profit on sale is

Answer Details

The asset was bought on 1st January 1995 for N60,000 and depreciated annually at 20% on cost. The accumulated depreciation as at 30th October 1998 is calculated as follows: Depreciation for 1995 = 20/100 x 60,000 = N12,000 Depreciation for 1996 = 20/100 x 60,000 = N12,000 Depreciation for 1997 = 20/100 x 60,000 = N12,000 Depreciation for 1998 (up to 30th October) = 20/100 x 60,000 x 10/12 = N10,000 Total accumulated depreciation as at 30th October, 1998 = N46,000 The book value of the asset on 30th October, 1998 is calculated as follows: Cost price of the asset = N60,000 Accumulated depreciation = N46,000 Book value = Cost price - Accumulated depreciation Book value = N60,000 - N46,000 = N14,000 Since the asset was sold for N21,000, the profit on sale is calculated as follows: Profit on sale = Selling price - Book value Profit on sale = N21,000 - N14,000 = N7,000 Therefore, the profit on sale is N7,000. Answer option: (D) N9,000 is not correct.