Reasons for profit or loss on disposal

[costargh]

I have a problem with this area of the course, more specifically, the abscene of a major factor from the Cambridge text book, or in another way, a massive flaw in an assumption that is made with respect to this area of the course.

"A profit or loss on the disposal of an asset indicates that the carrying value- and the depreciation that leads to this carrying value- was in some way incorrect"- Camrbidge VCE Accounting- page 299

Here's a hypothetical. John's Books has equipment with a historical cost of $10,000. It was depreciated by 10% per year and it was expected to have a useful life of 10 years (ie. residual value of $0). After 5 years John's Books decides to sell its equipment... (here's what I have a problem with). After a month of advertising their equipment for $4000, ($1000 below its carrying value) no one has shown an interest in buying their equipment, so they stop their advertisements. Another month passes and a business that is just starting up has seen their equipment while browsing their store and wants to buy their equipment ASAP (to start operating)... so they offer $6000) (ohhh for the sake of easiness... less not depreciate the asset even more for  the month/s that have passed... same principle still applies).... now they decide to sell and have made a $1000 profit on the disposal of their furniture... so as the course stipulates, the NCA was over-depreciated, yet when they wanted to sell at $4000 (but couldn't find a buyer) they had under-depreciated their NCA.

Here is my point: I don't agree that every time a profit or loss occurs on the disposal of an asset, an error has occured in the depreciation of that NCA.

[Noblesse]

Your point is very valid, but like most of the Accounting course it cannot cover every situation. Don't make it more complicated! *shakes fist at Budgets*

[sophia__]

tell baron
[email protected]

[costargh]

Lol yeh... it will just shit me every time that I have to write that an error occurred in depreciation. But I'll survive. hah

Will do sophia :smitten:

[costargh]

I e-mailed Vikki but got this msg:

The following message to <[email protected]> was undeliverable.
The reason for the problem:
5.1.0 - Unknown address error 550-'No such recipient


YOU LIED SOPHIA!