A vehicle that cost KSh 900,000, with accumulated depreciation of KSh 450,000, was sold for KSh 520,000. What was the result of the disposal?

Answer and explanation

Correct answer: C. profit of KSh 70,000

  1. Step 1: Net book value = cost - accumulated depreciation = 900,000 - 450,000 = 450,000. Step 2. Proceeds - net book value = 520,000 - 450,000 = 70,000, which is a profit. Answer: profit of KSh 70,000. Why not the others: loss of KSh 70,000: That has the right amount but the wrong direction. profit of KSh 380,000: That compares the proceeds with the original cost instead of the net book value. profit of KSh 520,000: That treats all the proceeds as profit.

Practise more Disposal of non-current assets.

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