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WAEC SSCE - Financial Accounting - 2001 (Objective)

Question 1 Report

Jeng Limited disposed a fixed asset in 1999 for N2,000. The asset was purchased in 1996 at a cost of N10,000 and has been depreciated at the rate of 20% per annum using the straight line method. What is the profit or loss on the disposal asset?
Answer Details
The profit or loss on the disposal of an asset can be calculated as the difference between the sale proceeds and the carrying amount of the asset. The carrying amount of an asset is its cost less accumulated depreciation. In this case, the fixed asset was purchased for N10,000 and was depreciated at a rate of 20% per annum using the straight-line method. The accumulated depreciation for the asset as at the end of 1999 can be calculated as follows: Depreciation per annum = 20% of N10,000 = N2,000 Depreciation for 4 years (1996 to 1999) = N2,000 x 4 = N8,000 Therefore, the carrying amount of the asset as at the end of 1999 is: Carrying amount = Cost - Accumulated depreciation = N10,000 - N8,000 = N2,000 The asset was sold for N2,000, which is the same as its carrying amount. Therefore, there is no profit or loss on the disposal of the asset. Hence, the correct option is N2,000 loss (option D).
Read lesson note on Provisions And Reserves (WAEC)
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