Said bought and sold some non-current assets during the year. The following ledger details the activity on the plant and equipment at cost account. Non-current assets: Plant and equipment at cost account | Date | Narrative | $ | Date | Narrative | $ | | --------- | ------------- | ----- | --------- | --------- | ----- | | 1 Jan 20X4 | Balance b/d | 63,470 | 1 Sep 20X4 | Disposal | 27,700 | | 1 Jul 20X4 | Bank | 24,310 | 31 Dec 20X4 | Balance c/d | 60,080 | | | | 87,780 | | | 87,780 | Said made a profit on disposal of his plant and equipment of $4,370. Depreciation of $6,200 had been charged on these items. How much should Said include in his statement of cash flows for the proceeds on the sale of his plant and equipment? A. $24,310 B. $25,870 C. $27,700 D. $32,070
Answer (1)
To determine how much Said should include in his statement of cash flows for the proceeds on the sale of his plant and equipment, we need to consider the gain on disposal, the original cost, and any accumulated depreciation.
Here's a step-by-step analysis:
Cost of the Plant and Equipment Sold:
The account shows that the disposal was made for assets that originally cost $27,700.
Depreciation Charged on the Sold Asset:
It is given that depreciation of $6,200 had been charged on these items.
Book Value of the Asset Sold: Book Value = Original Cost − Accumulated Depreciation Book Value = 27 , 700 − 6 , 200 = 21 , 500
Profit on Disposal:
Said made a profit of $4,370 on the disposal of this equipment.
Proceeds from the Sale: Sale Proceeds = Book Value + Profit on Disposal Sale Proceeds = 21 , 500 + 4 , 370 = 25 , 870
Thus, the amount that should be included in the statement of cash flows for the proceeds on the sale of the plant and equipment is $25,870.
Therefore, the correct option is B. $25,870.
