On 1 January 20X1, Barbosa Ltd purchased an item of plant for GHS 300,000 which was to be depreciated over its useful life of 10 years. On 1 January 20X5, the plant was revalued to its fair value of GHS 600,000, with no revision to its remaining useful life. On 1 January 20X6, the plant was sold for GHS 700,000. In accordance with IAS 16 Property, Plant and Equipment, what was the profit on disposal to be included in Barbosa Ltd’s income statement for the year ended 31 December 20X6?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
- On 1 January 20X1, Barbosa Ltd purchased an item of plant for GHS 300,000 which was to be
depreciated over its useful life of 10 years.
On 1 January 20X5, the plant was revalued to its fair value of GHS 600,000, with no revision to its remaining useful life.
On 1 January 20X6, the plant was sold for GHS 700,000.
In accordance with IAS 16 Property, Plant and Equipment, what was the profit on disposal to be included in Barbosa Ltd’s income statement for the year ended 31 December 20X6?
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