delivery van originally cost £18,000 and was to be depreciated at 25 per cent using the reducing balance method. The van was held by the business for two years before it was sold for £8,500. The profit or loss on the disposal would be calculated as follows: we need to ascertain the net book value of the asset. Therefore we need to calculate the depreciation for each of the two years:
•In year 1, the depreciation on the van would have been 25% × £18,000 = £4,500.
•In year 2, the depreciation would have been 25% × £13,500 (net book value at end of year 1) = £3,375.
•This means the net book value of the van at the moment of sale would have been £10,125.
•Therefore, the business made a loss on the disposal of this van of £1,625 (£8,500– £10,125).