June 2026
Depreciation and disposal questions in VCE Accounting are often treated as formula questions.
The 2025 exam showed why that approach is too narrow.
Students were required to calculate depreciation, complete a Disposal of Delivery Van account, recognise the trade-in of an old van, account for the purchase of a new van, and show the effect of the transaction on the Cash Flow Statement.
This was not simply a test of whether students knew a depreciation formula.
It tested whether they understood timing, carrying value, ownership period, non-cash components and the order in which accounting events must be recorded.
In VCE Accounting, depreciation and disposal questions reward students who can sequence the process correctly.
Depreciation had to be updated before disposal
Question 8 involved AB Gym Equipment, a business that owned delivery vans and used straight-line depreciation at 15% per annum on cost.
One of the vans originally cost $40,000 plus GST and had a carrying value of $12,000 at 30 June 2024. It was traded in on 31 December 2024.
Before the disposal could be recorded, depreciation had to be calculated up to the date of disposal.
That timing mattered.
The van was owned for six months of the 2024–2025 financial year before being traded in. Since straight-line depreciation was 15% per annum on cost, depreciation for six months was:
$40,000 × 15% × 6/12 = $3,000
This amount had to be recorded before determining the updated carrying value of the van.
A common error in disposal questions is to jump straight to the trade-in amount. That skips a necessary step. The carrying value at disposal must reflect depreciation up to the date the asset leaves the business.
The accounting record must be current before the disposal is recorded.
Carrying value was central to the disposal result
At 30 June 2024, the traded-in van had a carrying value of $12,000.
After six months of depreciation to 31 December 2024, its carrying value became:
$12,000 − $3,000 = $9,000
The trade-in allowance was $10,000.
This meant the business received an allowance greater than the carrying value of the van. The result was a gain on disposal of $1,000.
This is the core logic of disposal accounting.
The gain or loss is not determined by comparing the trade-in allowance to the original cost. It is determined by comparing the proceeds or trade-in allowance to the carrying value at the date of disposal.
That distinction is essential.
Original cost shows what the asset cost when acquired. Carrying value shows the asset’s value in the records after accumulated depreciation. Disposal compares what the business receives with what the asset is currently recorded as being worth.
The Disposal account required a full transfer
A Disposal of Delivery Van account brings together the relevant components of the asset being removed.
The original cost of the old van is transferred to the debit side. Accumulated Depreciation is transferred to the credit side. The trade-in allowance is also recorded. The difference becomes either a gain or loss on disposal.
This account is not just a format.
It shows the accounting logic of removing the asset from the records.
The business must remove the cost of the old van. It must remove the accumulated depreciation associated with that van. It must record what was received for the van. Only then can the gain or loss be identified.
Students who memorise a disposal layout without understanding these movements are vulnerable to errors. They may place figures on the wrong side, omit depreciation to the date of disposal, or treat the trade-in allowance as cash received.
The Disposal account is a reconciliation of the asset’s removal.
Trade-in allowance was not cash received
The trade-in allowance in Question 8 was $10,000 on the new van.
This was not cash received by the business.
It reduced the amount the business had to pay for the new van. The new van cost $48,000 plus GST. The trade-in allowance reduced the cash required, but the allowance itself was a non-cash component of the transaction.
This distinction mattered in the Cash Flow Statement.
A Cash Flow Statement records cash inflows and outflows. A trade-in allowance is not a cash inflow from selling the old van. It is part of the exchange arrangement used to acquire the new van.
Students who treat the trade-in allowance as cash received misunderstand what the Cash Flow Statement reports.
The exam repeatedly rewarded students who could distinguish accounting gains, trade-in values and depreciation from actual cash movement.
The new van created a separate depreciation calculation
The new delivery van was purchased and delivered on 31 December 2024. It cost $48,000 plus GST.
For the year ended 30 June 2025, the new van was owned for six months.
Using straight-line depreciation at 15% per annum on cost, depreciation on the new van was:
$48,000 × 15% × 6/12 = $3,600
This was separate from depreciation on the traded-in van.
The report noted that many students struggled with the depreciation calculation for delivery vans for the year. One of the likely reasons is that students had to separate the assets by ownership period.
There were different vans, different time periods and different depreciation amounts.
A single full-year calculation would not work.
Remaining assets still had to be depreciated
The business originally had delivery vans with a total cost of $90,000. One van costing $40,000 was traded in. This meant the remaining old delivery van or vans had a cost of $50,000.
Those remaining assets were still owned for the full year ended 30 June 2025.
Their depreciation therefore needed to be calculated for the full year:
$50,000 × 15% = $7,500
The total depreciation for the year would include:
- depreciation on the traded-in van for six months
- depreciation on the remaining old van or vans for the full year
- depreciation on the new van for six months
This is where sequencing becomes essential.
The business did not own the same set of assets for the whole year. The depreciation expense had to reflect the actual ownership periods.
Depreciation is an allocation, not a cash payment
Depreciation often appears in questions alongside cash flow, which makes classification important.
Depreciation is an expense, but it is not a cash outflow. It allocates the cost of a non-current asset over its useful life. It reduces profit and the carrying value of the asset, but it does not involve cash leaving the business in the period.
This matters when preparing or interpreting Cash Flow Statements.
In Question 8, students needed to show the effect of the disposal of the old van and the purchase of the new van on the Cash Flow Statement. The depreciation expense and gain on disposal were not cash flows. The relevant cash flow was the amount actually paid for the new van after considering the trade-in allowance and GST treatment.
VCE Accounting often tests whether students can separate profit effects from cash effects.
Depreciation is one of the clearest examples.
Disposal gains and losses are not cash flows
A gain on disposal may increase profit, and a loss on disposal may reduce profit.
Neither is itself a cash flow.
The gain or loss is an accounting outcome created by comparing the asset’s carrying value with the proceeds or trade-in allowance. It does not tell us how much cash was received or paid.
This distinction is important because students often treat gains and losses as if they are cash movements.
They are not.
In the AB Gym Equipment question, the gain on disposal helped explain the accounting effect of the trade-in. However, the Cash Flow Statement still needed to focus on actual cash paid for the new van.
The Cash Flow Statement is not concerned with whether the business made a gain or loss on disposal. It is concerned with cash movement.
Timing was the hidden difficulty
The most challenging part of Question 8 was not the arithmetic itself.
It was timing.
Students had to recognise that:
- the old van needed six months of depreciation before disposal
- the remaining old van or vans needed a full year of depreciation
- the new van needed six months of depreciation
- the trade-in occurred on 31 December
- the Cash Flow Statement for the year ended 30 June 2025 only included cash effects within that year
This is typical of higher-level Accounting questions.
The formulas may be familiar, but the dates determine how they are applied.
Students need to read dates as accounting instructions.
Non-current assets affect several reports
A disposal transaction does not affect only one account.
It can affect:
- Depreciation Expense
- Accumulated Depreciation
- the asset account
- Disposal of Asset
- Gain or Loss on Disposal
- Bank
- GST Clearing
- the Cash Flow Statement
- the Balance Sheet
This is why disposal questions can feel difficult. They require students to trace the transaction across the accounting system.
A van is not simply “sold” or “replaced”. Its cost must be removed. Its accumulated depreciation must be removed. Its carrying value must be updated. The trade-in allowance must be recorded. The new van must be recognised. Cash paid must be identified. Depreciation on all relevant vans must be calculated.
This is accounting as a sequence of linked effects.
What future Accounting students should learn from 2025
The 2025 depreciation and disposal questions show that students need to master both the process and the reasoning.
Students should be able to:
- calculate depreciation to the date of disposal
- distinguish original cost from carrying value
- update carrying value before determining gain or loss
- complete a Disposal account logically
- recognise that trade-in allowance is not cash received
- calculate depreciation for assets owned for different periods
- distinguish depreciation expense from cash outflows
- separate gains and losses from cash movements
- trace non-current asset transactions through multiple reports
- use dates to determine the correct accounting treatment
These skills are not isolated. They work together.
Depreciation and disposal questions reward students who can follow the asset through its accounting life.
How ATAR STAR approaches depreciation and disposals
At ATAR STAR, depreciation and disposals are taught as a sequence, not a memorised layout.
Students learn to update depreciation first, determine carrying value, remove the asset and accumulated depreciation, record the trade-in or proceeds, identify the gain or loss, and then separate cash and non-cash effects for reporting.
The 2025 Examination Report confirms why this matters. High-scoring responses were not simply applying formulas. They were following the accounting event in the correct order.
They understood the asset’s story from purchase to disposal.