Syllabus Edition
First teaching 2025
First exams 2027
Profit or Loss on a Sale of a Non-Current Asset (Cambridge (CIE) IGCSE Accounting): Revision Note
Exam code: 0452 & 0985
Profit or loss on a sale of a non-current asset
Can a business sell a non-current asset?
A non-current asset can be sold when the business no longer needs it
This is referred to as the disposal of a non-current asset
The sale of the non-current asset could be a cash sale or credit sale
If it is a credit sale then a general ledger account is created for the person or business buying the asset
This account is referred to as an other receivables account to avoid confusion with trade receivables accounts
The money received from the sale is called the proceeds of the sale
This is a capital receipt
A non-current asset can also be used as a part-exchange for a new non-current asset
The business and the supplier of the new asset will agree on the value of the old asset
The business will give the old asset to the supplier
The supplier will reduce the cost of the new asset by the value of the old asset
Examiner Tips and Tricks
Do not include the sale of a non-current asset in the sales account! The sales account is just for the sale of goods. The sale of a non-current asset will be detailed in a disposal account.
How do I calculate the profit or loss on a sale of a non-current asset?
STEP 1
Calculate the net book value of the non-current assetThe cost of the asset minus the accumulated depreciation
STEP 2
Calculate the difference between the proceeds of the sale and the net book valueSTEP 3
Determine if a profit or loss has been madeIf the proceeds of the sale are greater than the net book value then it is a profit
This means too much depreciation has been charged
If the proceeds of the sale are smaller than the net book value then it is a loss
This means not enough depreciation has been charged
Examiner Tips and Tricks
Check whether the question says there is a depreciation charge for the non-current asset in the year of sale. If there is, then calculate that year’s depreciation and include it in the provision for depreciation account before working out the net book value.
Worked Example
Sufiya buys equipment for $30 000 on 1 March 2020 at the start of her financial year. She charges depreciation at 20% per annum using the straight-line method.
Sufiya sells the equipment for $13 000 on 14 February 2024. She charges a full year’s depreciation in the year the equipment is purchased and none in the year it is sold.
Calculate the gain or loss on disposal of the equipment.
Answer:
STEP 1 - Calculate the net book value
Calculate the yearly depreciation charge
20% × $30 000 = $6 000
Calculate the total provision for depreciation
Sufiya charges depreciation for three years from 1 March 2020 until 28 February 2023
No depreciation is charged in the year of sale
3 × $6 000 = $18 000
Calculate the net book value
$30 000 - $18 000 = $12 000
STEP 2 - Calculate the profit or loss
Calculate the difference between the sale proceeds and the net book value
$13 000 - $12 000 = $1 000
STEP 3 - Identify whether it is a profit or loss
The sale proceeds are higher than the net book value therefore it is a profit
Profit of $1 000
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