Incomplete Records

Profit in Relation to Revenue & Disposal of Non-Current Assets

Profit in Relation to Revenue

Profit in relation to revenue (also called net profit margin) expresses net profit as a percentage of revenue:

Profit in relation to revenue = Net profit / Revenue × 100

It is used in incomplete records in the same way as gross profit margin — if the ratio and one of the two figures are known, the third can be calculated.

Example: Net profit £18 000; profit in relation to revenue 15%

• Revenue = 18 000 / 15 × 100 = 120 000

Example: Revenue £240 000; profit in relation to revenue 12%

• Net profit = 240 000 / 100 × 12 = 28 800

Disposal of Non-Current Assets

When an asset is sold during the year, the missing information technique uses the non-current asset NBV account to find depreciation or a disposal figure.

Finding Depreciation When an Asset Is Disposed Of

If opening NBV, additions, closing NBV, and disposal proceeds are known, depreciation is the balancing figure:

Non-Current Asset (NBV) Account
Dr                                 Cr
Bal b/d (opening NBV)       x    Depreciation (IS charge)    x
Additions at cost           x    Disposal at NBV             x
                           ──    Bal c/d (closing NBV)       x
                            x                                 x

Formula:

Depreciation = Opening NBV + Additions − Disposal at NBV − Closing NBV

Disposal Account

To calculate profit or loss on disposal:

Disposal Account
Dr                                    Cr
Asset at NBV (removed from books)  x    Sale proceeds (bank/cash)       x
Profit on disposal (IS)            x    Loss on disposal (IS)           x

• If proceeds > NBV → profit on disposal (credit entry in disposal account, income in IS)
• If proceeds < NBV → loss on disposal (debit entry in disposal account, expense in IS)

Worked example: Asset NBV at start of year £8 000; no additions; NBV at end of year £4 500 (after depreciation of £2 000 and disposal of an asset with NBV £1 500 that was sold for £1 200)

• Depreciation: 8 000 − 1 500 − 4 500 = 2 000 (verified)
• Disposal proceeds: 1 200; asset NBV: 1 500 → loss on disposal = 300

Exam tip: In incomplete records questions, the NBV account shortcut (Opening NBV + Additions − Closing NBV = Depreciation + Net disposal adjustment) is often the fastest route.