Day: November 23, 2019

On 1 January 1993, a firm bought a second-hand van for £6,000 and paid £260 to have the firm’s name and logo painted on it.

The firm depreciates vehicles over a five year period using the straight—line method. assuming a nil residual value. A full year’s depreciation is charged in the year of acquisition and none in the year of disposal. The firms accounting year-end is 31 December.

What was the profit on the sale of the van, if it was sold for £5,000 on 31 March 1996

Select ONE answer:

1. £1,000
2. £1,244
3. £2,496
4. £2,600

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not Correct
2. Not Correct
3. Annual depreciation charge = (£6,000 + £260) / 5 = £1,252
   Total depreciation charged = 3 years * £1,252 pa = £3,756 (1996 = 0)
   NBV = Capital cost – Total depreciation = £6,260 – £3,756 = £2,504
   Profit or loss on sale = Proceeds – NBV = £5,000 – £2,504 = £2,496 Profit
4. Not Correct

 

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