Accounting Online Program Certification Practice Test

What was the net effect on Beehive plc's statement of profit or loss for the car disposed of?

1. £1,200 credit

2. £1,100 credit

3. £800 debit

4. £900 credit

The correct answer is: £1,100 credit

To determine the net effect on Beehive plc's statement of profit or loss for the disposed car, it is important to consider how the disposal of an asset like a car affects both the profit or loss as well as the accounting records involved. When an asset is disposed of, the accounting treatment typically involves recording the difference between the disposal proceeds (the cash or other consideration received from the sale) and the carrying amount of the asset at the time of disposal. The carrying amount is the original cost of the asset less any accumulated depreciation. If we assume that the car was sold for a certain amount, and after assessing the accumulated depreciation on the car, the difference—given that the proceeds were higher than the carrying amount—will result in a gain on disposal. In this case, a credit entry will be made to the statement of profit or loss, as gains increase profit. In this scenario, if the calculated gain was £1,100, this means that the proceeds from the sale, when subtracted by the carrying amount of the car, would result in crediting £1,100 to profit or loss. This reflects the net effect of the transaction on Beehive plc’s financials. Thus, a credit of £1,100