A business traded in an old van for a new van with a list price of $42,000. The dealer gave a part-exchange allowance of $9,500 and the balance was paid in cash. The old van had cost $30,000 and had accumulated depreciation of $22,000. What is the profit or loss on disposal of the old van?

Correct answer: B) Profit of $1,500

Explanation

The part-exchange allowance is the disposal proceeds of the old van. Carrying amount = $30,000 - $22,000 = $8,000. Profit = $9,500 - $8,000 = $1,500. The new van is recorded at its full cost of $42,000 ($9,500 allowance + $32,500 cash). Comparing proceeds with original cost gives a loss of $20,500.