What amount should be entered in the 20X3 statement of profit or loss and other comprehensive income for profit or loss on disposal?
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.
Your firm bought a machine for $5,000 on 1 January 20X1, which had an expected useful life of four
years and an expected residual value of $1,000; the asset was to be
basis. The firm's policy is to charge depreciation in the year of disposal. On 31 December 20X3, the
machine was sold for $1,600.
What amount should be entered in the 20X3 statement of profit or loss and other comprehensive
income for profit or loss on disposal?
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