CIMA BA3 · Chapter 10 · Question 5 of 10
A business buys a new van with a price of $30,000. It trades in an old van, which cost $18,000 and has accumulated depreciation of $11,400, receiving a part-exchange allowance of $5,000, and pays the balance of $25,000 in cash. Which of the following is correct?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) The new van is recorded at $30,000 and there is a loss on disposal of $1,600
Explanation
The new van's cost is its full price of $30,000, settled by the part-exchange allowance of $5,000 plus cash of $25,000. The part-exchange allowance is the disposal proceeds of the old van. Carrying amount of the old van = $18,000 - $11,400 = $6,600. Loss on disposal = $6,600 - $5,000 = $1,600.
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