Use the following information to answer this question A fixed asset was bought for #60,000 on 1st January, 1997. Depreciation was provided at 10% on cost. I...

The asset cost \( \text{#}60{,}000 \) and is depreciated at \( 10\% \) of cost per year (straight-line method), so the annual depreciation charge is:

\[ \text{#}60{,}000 \times 10\% = \text{#}6{,}000 \text{ per year} \]

The asset was bought on 1 January 1997 and sold on 30 June 2001. Counting the full years 1997, 1998, 1999 and 2000, plus the half year from January to June 2001, gives a total useful life to the point of sale of \( 4.5 \) years.

\[ \text{Accumulated depreciation} = 4.5 \times \text{#}6{,}000 = \text{#}27{,}000 \]

Item	Amount
Cost	#60,000
Accumulated depreciation (4.5 years)	#27,000
Net book value at date of sale	#33,000
Sale proceeds	#16,000

The net book value (also called carrying amount) of a fixed asset is its cost less the depreciation accumulated up to the date of disposal:

\[ \text{Net book value} = \text{Cost} - \text{Accumulated depreciation} = \text{#}60{,}000 - \text{#}27{,}000 = \text{#}33{,}000 \]

This is the figure that would have appeared in the asset account (or the balance sheet) immediately before the sale was recorded. It is distinct from the sale proceeds of \( \text{#}16{,}000 \), and from the resulting loss on disposal of \( \text{#}17{,}000 \), which is simply the difference between the net book value and the proceeds.

Examination reminder: net book value depends only on cost and accumulated depreciation up to the disposal date; it has nothing to do with what the asset is eventually sold for.