ICAEW AF · Chapter 11 · Question 6 of 13
A company trades in an old van for a new one. The old van cost £24,000 and has accumulated depreciation of £15,600. The dealer gives a part-exchange allowance of £7,000 against the new van's price of £30,000, and the company pays the balance of £23,000 in cash. What is the profit or loss on disposal of the old van?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Loss of £1,400
Explanation
The part-exchange allowance is treated as the disposal proceeds of the old van. Carrying amount = £24,000 - £15,600 = £8,400. Loss = £8,400 - £7,000 = £1,400. The new van is recorded at its full cost of £30,000, made up of the allowance £7,000 plus cash £23,000.
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