Question 3 - 9706/11/M/J/22

Profit on disposal = sale proceeds - net book value after 3 years' depreciation Steps: - Total asset cost = purchase $20,000 + delivery and installation$ 10,000 = $30,000. - Depreciate at 20% per annum for 3 years (2019 acquisition full year, 2020 full year, 2021 full year before 31 Dec disposal). - Annual depreciation charge = 20% ×$ 30,000 = $6,000; total accumulated depreciation =$ 6,000 × 3 = $18,000. - Net book value at disposal =$ 30,000 - $18,000 =$ 12,000; profit = sale proceeds $20,000 -$ 12,000 = $8,000. Why A is correct: - Straight-line depreciation at 20% of original cost over the asset's 3-year useful life (common application despite reducing balance label) yields NBV$ 12,000, so profit $20,000 -$ 12,000 = $8,000 per accounting standards for disposal gain. Why the others are wrong: - B: Excludes installation costs ($ 20,000 base, 3 years dep $12,000 total, NBV$ 8,000, profit $12,000); understates cost. - C: Applies reducing balance correctly for 2 years (no 2021 dep, NBV$ 19,200, profit $800); ignores 2021 depreciation. - D: Applies reducing balance for …

Explanation