Asset Disposal – Page 2

ATAX – Nov 2016 – L3 – Q3 – Capital Gains Tax (CGT)

Computes chargeable gains, capital gains tax, and implications of disposing part of a company’s assets.

Question

Obioma and Sons Limited, a company based in Emene – Enugu, has been producing vegetable oil since 2015. It has been a leading name in the production of a popular brand of household vegetable oil known as “Abop,” which is in high demand.

Given the fact that the company is doing very well, it secured funds from its bankers and bought additional Plant and Machinery in excess of its immediate needs on June 1, 2013 for N24,600,000. The Finance Director convinced the Board to dispose part of the plant and machinery to boost the company’s working capital. Consequently, on December 31, 2015, the company sold part of the Plant and Machinery for N37,925,000 and spent N5,125,000 as expenses incidental to the sale. The market value of the remaining Plant and Machinery was N15,375,000 as at December 31, 2015.

However, the issue of the tax implications of these transactions is worrisome to the Managing Director, who is visibly disturbed that the Federal Inland Revenue Service (FIRS) might come after the company.

As the tax consultant to the company, you are required to:

a) State any FOUR Chargeable Assets. (2 Marks)
b) State any FOUR conditions for granting Roll-Over Relief. (8 Marks)
c) Compute the Chargeable Gains on the asset sold. (4 Marks)
d) Compute the Capital Gains Tax. (2 Marks)
e) Compute the new cost of the remaining asset. (4 Marks)

Answer

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Tags: Asset Disposal, Capital Gains, Chargeable assets, Plant and Machinery, Roll-Over Relief
Level: Level 3

Topic: Capital Gains Tax (CGT)

AT – May 2018 – L3 – SB – Q3a – Capital Gains Tax

Explain disposal under Capital Gains Tax Act, define incidental costs, and describe delayed remittance relief conditions.

Question

Capital gains may be defined as gains arising from increases in the market value of capital assets, to a corporate body or person who does not habitually offer them for sale, and in whose hands they do not constitute inventory-in-trade.

With respect to the Capital Gains Tax Act, you are required to explain:

(i) When a “disposal” is said to have taken place. (2 Marks)

(ii) What constitutes “incidental costs”? (2 Marks)

(iii) Under what circumstances can a “delayed remittance” relief be granted? (2 Marks)

Answer

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Tags: Asset Disposal, Capital gains tax, Delayed Remittance Relief, Disposal, Incidental Costs, Tax Relief
Level: Level 3

Topic: Capital Gains Tax (CGT)
Series: MAY 2018

BMF – May 2016 – L1 – SA – Q11 – Basics of Business Finance and Financial Markets

This question assesses the understanding of sources of business financing.

Question

Which of the following is NOT a source of financing?
A. Bank overdrafts
B. Short-term bank loans
C. Suppliers
D. Proceeds of disposal of fixed assets
E. Operating leases

Answer

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Tags: Asset Disposal, Financing, Short-term Finance
Level: Level 1

Topic: Basics of Business Finance and Financial Markets
Series: MAY 2016

FA – May 2013 – L1 – SA – Q26 – Depreciation Methods and Accounting for Disposals

This question involves calculating the profit or loss on the disposal of a non-current asset.

Question

A non-current asset with an original cost of N500,000 and accumulated depreciation of N400,000 was disposed of for N80,000. Calculate the profit or loss on disposal.

Answer

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Tags: Asset Disposal, Profit or Loss
Level: Level 1

Topic: Depreciation Methods and Accounting for Disposals
Series: MAY 2013

FA – May 2014 – L1 – SA – Q18 – Accounting Concepts

This question tests knowledge of the accounting entries for recording scrapped containers in container trading accounts.

Question

In accounting for Containers using container trading account method, the necessary accounting entries to record scrapped containers are ………………….

Answer

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Tags: Asset Disposal, Container Accounting, Journal Entries
Level: Level 1

Topic: Accounting Concepts
Series: MAY 2014

FA – May 2014 – L1 – SA – Q14 – Partnership Account

Identifies the account used for recording the sale of assets during partnership dissolution.

Question

In partnership business, the account maintained to determine the profit or loss arising from the sale of assets on dissolution is called
A. Revaluation Account
B. Asset Disposal Account
C. Profit or Loss Account
D. Receipt and Payment Account
E. Realisation Account

Answer

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Tags: Asset Disposal, Dissolution, Partnership, Realisation Account
Level: Level 1

Topic: Partnership Accounts (Including Profit Sharing, Capital and Current Accounts)
Series: MAY 2014

FA – May 2018 – L1 – SA – Q19 – Accounting for Property, Plant, and Equipment (IAS 16)

Determines the profit or loss on the disposal of a vehicle after depreciation.

Question

A vehicle was purchased on January 1, 2011, at a cost of N2,000,000 and was depreciated at 25% on cost. It was sold on December 31, 2013, for N1,400,000. Full-year depreciation was charged in the years of purchase and disposal. Determine the profit or loss on the disposal:
A. N900,000 loss
B. N500,000 loss
C. N500,000 profit
D. N900,000 profit
E. N1,150,000 profit

Answer

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Tags: Asset Disposal, Depreciation, Profit or Loss Calculation
Level: Level 1

Topic: Accounting for Property, Plant, and Equipment (PPE) IAS 16
Series: MAY 2018

FA – Nov 2021 – L1 – SA – Q1 – Accounting Concepts

This question tests knowledge of business cash inflow from disposal of assets.

Question

Which of the following will result in an increase in cash of the business?
A. Drawings from the business
B. Payments for a new asset
C. Proceeds from disposal of non-current assets
D. Payments to suppliers
E. Goods sold on credit to customers

Answer

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Tags: Asset Disposal, Business Transactions, Cash Inflow, Multiple Choice
Level: Level 1

Topic: Accounting Concepts
Series: NOV 2021

FA – May 2021 – L1 – SA – Q9 – Depreciation Methods and Accounting for Disposals

Calculate annual depreciation expense after revising useful life.

Question

Daoda purchased a piece of equipment for ₦930,000 on 1 September 2014. Depreciation was charged at 12.5% per annum on a straight-line basis from the date of purchase to 1 September 2018. The remaining useful life of the equipment was reviewed to 5 years at this date. The estimated residual value of the equipment was zero.

Calculate the amount of depreciation charged to the statement of profit or loss in respect of the equipment for the year ended 31 August 2019.

A. ₦23,250
B. ₦93,000
C. ₦103,333
D. ₦104,625
E. ₦114,000

Answer

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Tags: Asset Disposal, Depreciation, Straight-Line Method
Level: Level 1

Topic: Depreciation Methods and Accounting for Disposals
Series: MAY 2021

FA – May 2023 – L1 – SB – Q6b – Accounting for Property, Plant, and Equipment (IAS 16)

Calculation of gain or loss on disposal and recording the acquisition and disposal of cars in ledger accounts.

Question

The carrying amount of ten cars used by Bayo Limited on January 1, 2017, was N12,000,000 and the accumulated depreciation was N3,200,000. On January 2, 2017, the entity bought a new car costing N2,000,000. The dealer accepted a car owned by the entity in part exchange at a value of N160,000. The car originally cost N1,200,000 and its accumulated depreciation was N1,080,000.

i. Calculate the gain or loss on disposal of the old car. (4 Marks)

ii. Show how the purchase of the new car and the disposal of the old car will be recorded in the ledger accounts of Bayo Limited. (8 Marks)

Answer

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Tags: Asset Disposal, Carrying Amount, Plant and Equipment (PPE), Property
Level: Level 1

Topic: Accounting for Property, Plant, and Equipment (PPE) IAS 16
Series: MAY 2023

FA – May 2017 – L1 – SA – Q19 – Depreciation Methods and Accounting for Disposals

Identifies which elements represent cash movement from the sale of an asset.

Question

Consider the following items:
(i.) Gain on disposal
(ii.) Loss on disposal
(iii.) Receipt on disposal

Which of the above represents cash movement from the sale of an asset?
A. (i)
B. (ii)
C. (iii)
D. (i) & (ii)
E. (ii) & (iii)

Answer

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Tags: Asset Disposal, Cash Movement, Profit and Loss
Level: Level 1

Topic: Depreciation Methods and Accounting for Disposals
Series: MAY 2017

MI – May 2015 – L1 – SB – Q1 – Budgeting

Prepare a cash budget for a three-month period based on sales, purchases, loan, and other projections.

Question

WHYME LIMITED is engaged in the manufacturing and sales of fast-moving consumer products. The following data are projections for a period of six months:

Month	Sales (N’000)	Purchases (N’000)	Salaries (N’000)	Staff Salary Deductions (N’000)	Overheads (N’000)
Jan	9,600	5,400	1,650	78	1,650
Feb	15,800	12,000	1,760	82	1,920
March	16,000	10,000	1,760	90	2,100
April	17,600	11,000	1,789	89	2,400
May	14,800	11,200	1,842	92	1,860
June	14,200	9,800	1,800	85	1,720

Other additional information:

Sales are 25% on cash basis, 55% is collected in the month following sales, and the balance in the third month.
All purchases are on 30 days credit while 20% of overheads are paid in the same month, with the balance in the following month.
Net salaries will be paid in the same month, while statutory deductions are remitted on the 10th day of the following month.
A N10 million loan will be released in March to finance the purchase of a new asset costing N12 million in the same month. The loan will be repaid equally over four months starting from April. (Ignore interest).
An old asset will be disposed of in April for N1.5 million.
Cash balance as at the end of February will be N6.5 million, with N2.5 million put into a short-term investment in March at a 2% monthly interest rate, credited at the beginning of the following month.

Required:
Prepare a cash budget for the period of March to May. (Ignore taxation).
(20 Marks)

Answer

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Tags: Asset Disposal, Cash Budget, Financial planning, Loan, Payments, Receivables
Level: Level 1

Topic: Budgeting
Series: MAY 2015

FA – May 2024 – L1 – SA – Q5 – Depreciation Methods and Accounting for Disposals

Calculates gain or loss on the disposal of a motor car.

Question

What is the gain or loss on disposal of the old car if the company received a part-exchange allowance of ₦20,000 against an old car, which originally cost ₦70,000 and had accumulated depreciation of ₦45,000?

A. ₦5,000
B. ₦(5,000)
C. ₦7,000
D. ₦(7,000)
E. ₦10,000

Answer

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Tags: Asset Disposal, Gain or Loss Calculation, Non-current Assets
Level: Level 1

Topic: Depreciation Methods and Accounting for Disposals
Series: MAY 2024

PT – Nov2019 – L2 – Q5a – Taxation of Capital Gains

This question asks to compute the capital gains tax payable on the disposal of a land asset.

Question

Mamavi Dekey (Mamavi) purchased land in Ho in the Volta Region for a cost of GH¢200,000 in 2010. In 2011, she spent GH¢8,000 for grading the land. In March 2019, she spent another GH¢10,000 to reshape the land with the intention to sell it. Mamavi engaged Kobina Ebo, a Valuer, in June 2019 to value the land, and he charged GH¢2,000. In July 2019, she placed an advert at ‘Ho Bankoe FM’ on the sale of the land and paid GH¢1,000. In October 2019, she sold the land through an agent for GH¢300,000 to Kalika, and the agent’s commission was 2% of the sale value. Mamavi also paid GH¢600 for stamp duty and legal permit for conveyance of the land to Kalika.

Required:
Compute any tax payable.
(5 marks)

Answer

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Tags: Asset Disposal, Capital Gains, Land Sale, Tax computation
Level: Level 2

Topic: Taxation of Capital Gains
Series: NOV 2019

PT – July 2023 – L2 – Q5b – Taxation of Capital Gains

Calculate the capital gains tax payable on the sale of a warehouse with associated costs.

Question

Ann sold a warehouse on 13 June 2022 for GH¢640,000. The warehouse was purchased on 14 December 2020 for GH¢328,000 for investment purposes. Ann incurred the following:

Description	Amount (GH¢)
Legal fees	10,000
Accountant’s fees	15,000
Transfer tax	1,000

Required:
Calculate the tax payable.

Answer

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Tags: Asset Disposal, Capital Gains, Tax Calculation, Warehouse Sale
Level: Level 2

Topic: Taxation of Capital Gains
Series: JULY 2023

Question Tag: Asset Disposal

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ATAX – Nov 2016 – L3 – Q3 – Capital Gains Tax (CGT)

Computes chargeable gains, capital gains tax, and implications of disposing part of a company’s assets.

AT – May 2018 – L3 – SB – Q3a – Capital Gains Tax

Explain disposal under Capital Gains Tax Act, define incidental costs, and describe delayed remittance relief conditions.

BMF – May 2016 – L1 – SA – Q11 – Basics of Business Finance and Financial Markets

This question assesses the understanding of sources of business financing.

FA – May 2013 – L1 – SA – Q26 – Depreciation Methods and Accounting for Disposals

This question involves calculating the profit or loss on the disposal of a non-current asset.

FA – May 2014 – L1 – SA – Q18 – Accounting Concepts

This question tests knowledge of the accounting entries for recording scrapped containers in container trading accounts.

FA – May 2014 – L1 – SA – Q14 – Partnership Account

Identifies the account used for recording the sale of assets during partnership dissolution.

FA – May 2018 – L1 – SA – Q19 – Accounting for Property, Plant, and Equipment (IAS 16)

Determines the profit or loss on the disposal of a vehicle after depreciation.

FA – Nov 2021 – L1 – SA – Q1 – Accounting Concepts

This question tests knowledge of business cash inflow from disposal of assets.

FA – May 2021 – L1 – SA – Q9 – Depreciation Methods and Accounting for Disposals

Calculate annual depreciation expense after revising useful life.

FA – May 2023 – L1 – SB – Q6b – Accounting for Property, Plant, and Equipment (IAS 16)

Calculation of gain or loss on disposal and recording the acquisition and disposal of cars in ledger accounts.

FA – May 2017 – L1 – SA – Q19 – Depreciation Methods and Accounting for Disposals

Identifies which elements represent cash movement from the sale of an asset.

MI – May 2015 – L1 – SB – Q1 – Budgeting

Prepare a cash budget for a three-month period based on sales, purchases, loan, and other projections.

FA – May 2024 – L1 – SA – Q5 – Depreciation Methods and Accounting for Disposals

Calculates gain or loss on the disposal of a motor car.

PT – Nov2019 – L2 – Q5a – Taxation of Capital Gains

This question asks to compute the capital gains tax payable on the disposal of a land asset.

PT – July 2023 – L2 – Q5b – Taxation of Capital Gains

Calculate the capital gains tax payable on the sale of a warehouse with associated costs.

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Question Tag: Asset Disposal

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ATAX – Nov 2016 – L3 – Q3 – Capital Gains Tax (CGT)

Computes chargeable gains, capital gains tax, and implications of disposing part of a company’s assets.

You're reporting an error for "ATAX – Nov 2016 – L3 – Q3 – Capital Gains Tax (CGT)"

AT – May 2018 – L3 – SB – Q3a – Capital Gains Tax

Explain disposal under Capital Gains Tax Act, define incidental costs, and describe delayed remittance relief conditions.

You're reporting an error for "AT – May 2018 – L3 – SB – Q3a – Capital Gains Tax"

BMF – May 2016 – L1 – SA – Q11 – Basics of Business Finance and Financial Markets

This question assesses the understanding of sources of business financing.

You're reporting an error for "BMF – May 2016 – L1 – SA – Q11 – Basics of Business Finance and Financial Markets"

FA – May 2013 – L1 – SA – Q26 – Depreciation Methods and Accounting for Disposals

This question involves calculating the profit or loss on the disposal of a non-current asset.

You're reporting an error for "FA – May 2013 – L1 – SA – Q26 – Depreciation Methods and Accounting for Disposals"

FA – May 2014 – L1 – SA – Q18 – Accounting Concepts

This question tests knowledge of the accounting entries for recording scrapped containers in container trading accounts.

You're reporting an error for "FA – May 2014 – L1 – SA – Q18 – Accounting Concepts"

FA – May 2014 – L1 – SA – Q14 – Partnership Account

Identifies the account used for recording the sale of assets during partnership dissolution.

You're reporting an error for "FA – May 2014 – L1 – SA – Q14 – Partnership Account"

FA – May 2018 – L1 – SA – Q19 – Accounting for Property, Plant, and Equipment (IAS 16)

Determines the profit or loss on the disposal of a vehicle after depreciation.

You're reporting an error for "FA – May 2018 – L1 – SA – Q19 – Accounting for Property, Plant, and Equipment (IAS 16)"

FA – Nov 2021 – L1 – SA – Q1 – Accounting Concepts

This question tests knowledge of business cash inflow from disposal of assets.

You're reporting an error for "FA – Nov 2021 – L1 – SA – Q1 – Accounting Concepts"

FA – May 2021 – L1 – SA – Q9 – Depreciation Methods and Accounting for Disposals

Calculate annual depreciation expense after revising useful life.

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FA – May 2023 – L1 – SB – Q6b – Accounting for Property, Plant, and Equipment (IAS 16)

Calculation of gain or loss on disposal and recording the acquisition and disposal of cars in ledger accounts.

You're reporting an error for "FA – May 2023 – L1 – SB – Q6b – Accounting for Property, Plant, and Equipment (IAS 16)"

FA – May 2017 – L1 – SA – Q19 – Depreciation Methods and Accounting for Disposals

Identifies which elements represent cash movement from the sale of an asset.

You're reporting an error for "FA – May 2017 – L1 – SA – Q19 – Depreciation Methods and Accounting for Disposals"

MI – May 2015 – L1 – SB – Q1 – Budgeting

Prepare a cash budget for a three-month period based on sales, purchases, loan, and other projections.

You're reporting an error for "MI – May 2015 – L1 – SB – Q1 – Budgeting"

FA – May 2024 – L1 – SA – Q5 – Depreciation Methods and Accounting for Disposals

Calculates gain or loss on the disposal of a motor car.

You're reporting an error for "FA – May 2024 – L1 – SA – Q5 – Depreciation Methods and Accounting for Disposals"

PT – Nov2019 – L2 – Q5a – Taxation of Capital Gains

This question asks to compute the capital gains tax payable on the disposal of a land asset.

You're reporting an error for "PT – Nov2019 – L2 – Q5a – Taxation of Capital Gains"

PT – July 2023 – L2 – Q5b – Taxation of Capital Gains

Calculate the capital gains tax payable on the sale of a warehouse with associated costs.

You're reporting an error for "PT – July 2023 – L2 – Q5b – Taxation of Capital Gains"

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