- 3 Marks
Question
Odeda Limited operates its business with plant and equipment that qualified under IAS 16 as property, plant, and equipment. On January 1, 2016, the cost of the company’s plant was N4,000,000, and the accumulated depreciation was N1,600,000. On January 2, 2016, the company bought a new equipment at the cost of N1,000,000, and the equipment supplier accepted an old equipment owned by Odeda Limited in part exchange for a value of N80,000. The equipment originally cost N600,000, and its accumulated depreciation is N500,000.
You are required to calculate the gain or loss on the disposal of the old equipment.
Answer
Calculation of Gain or Loss on Disposal of Old Equipment
- Carrying Amount of the Old Equipment:
- Original Cost: N600,000
- Accumulated Depreciation: N500,000
- Carrying Amount: N600,000 – N500,000 = N100,000
- Proceeds from Disposal:
- Part Exchange Value: N80,000
- Gain or Loss on Disposal:
- Loss on Disposal: N80,000 (Proceeds) – N100,000 (Carrying Amount) = -N20,000
The loss on the disposal of the old equipment is N20,000.
- Topic: Property, Plant, and Equipment (IAS 16)
- Series: MAY 2018
- Uploader: Kofi