FA – May 2017 – L1 – SA – Q19 – Depreciation Methods and Accounting for Disposals

Identifies which elements represent cash movement from the sale of an asset.

Question

Consider the following items:
(i.) Gain on disposal
(ii.) Loss on disposal
(iii.) Receipt on disposal

Which of the above represents cash movement from the sale of an asset?
A. (i)
B. (ii)
C. (iii)
D. (i) & (ii)
E. (ii) & (iii)

Answer

Answer: C. (iii)

Explanation: The receipt from disposal represents actual cash inflow. A gain or loss on disposal is an accounting entry reflecting the difference between the sale price and the asset’s book value, but it does not involve cash movement. Only the receipt represents the cash received from the sale of the asset.

Tags: Asset Disposal, Cash Movement, Profit and Loss
Level: Level 1

Topic: Depreciation Methods and Accounting for Disposals
Series: MAY 2017

Uploader: Kwame Aikins