Reducing Balance Depreciation: Calculating Profit/Loss on Non-Current Asset Disposal

A non-current asset was purchased at the beginning of Year 1 for €2,400 and depreciated by 20 per cent per annum by the reducing balance method. At the beginning of Year 4 it was sold for €1,400. The resulting profit/loss on disposal was (to the nearest euro). (Please use the following format for numbers of 1,000 or more: 1,000; 10,000; 100,000; 1,000,000, etc.; for negative values use (100); (1,000); (10,000); (100,000), etc. without a currency symbol.)

The calculation of the profit or loss on disposal involves determining the carrying amount of the non-current asset at the time of sale and then comparing it to the sale price.

The non-current asset was purchased for €2,400 at the beginning of Year 1.
It is depreciated by 20% per annum by the reducing balance method.
The asset was sold for €1,400 at the beginning of Year 4.

To calculate the carrying amount at the start of Year 4, we need to determine the total depreciation for each year from Year 1 to Year 3:

Year 1 Depreciation = Original Cost * Depreciation Rate = €2,400 * 20% = €480 Year 2 Depreciation = €2,400 - €480 = €1,920 Year 3 Depreciation = €1,920 * 20% = €384 Carrying Amount at the start of Year 4 = €1,920 - €384 = €1,536

So, the carrying amount at the start of Year 4 is €1,536.

Profit/Loss on disposal = Sale Price - Carrying Amount = €1,400 - €1,536 = (€136)

The resulting loss on disposal, rounded to the nearest euro, would be €(136).

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