Accounting Online Program Certification Practice Test

What was the loss incurred by Herepath plc on the disposal of the Foxy car?

1. £1,965

2. £2,665

3. £2,000

4. £3,500

The correct answer is: £2,665

The loss incurred on the disposal of an asset, such as the Foxy car in this scenario, is typically calculated by comparing the asset’s book value at the time of disposal to the proceeds received from the sale. The book value includes the initial cost of the asset minus any accumulated depreciation. If the proceeds from the sale are less than the book value, a loss is recognized; conversely, if the proceeds exceed the book value, a gain is noted. Therefore, to arrive at a loss of £2,665, it can be deduced that this amount represents the difference between the Foxy car's book value and the proceeds from its sale. This figure reflects a specific accounting treatment where all relevant costs and valuations have been taken into account, indicating that the decision to dispose of the Foxy car resulted in a financial setback of this amount for Herepath plc. Understanding how these calculations are derived is essential for managing assets effectively within an accounting framework.