On 31 August 1992 a firm bought a machine for £44,000. At that date, the estimated useful economic life of the machine was seven years and its estimated residual value was £2,000.
On 30 June 19% the firm sold the machine for £18,000. The firm’s accounting period—end is 31 December and its policy is to calculate depreciation using the straight line method, charging a full year’s depreciation in the year of acquisition and no depreciation in the year of disposal.
The profit earned. or the loss incurred, on the disposal of the machine was:
Select ONE answer:
- Loss of £2,000
- Loss of £3,000
- Loss of £3,500
- Profit of £4,000
Show your workings to arrive at your answer, and explain and justify your reasons:
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This multiple-choice question is suitable for Accounting KS5 classes.
The answer is 1
- Annual depreciation charge = (£44,000 – £2,000) / 7 = £6,000
Total depreciation charged = 4 years * £6,000 pa. = £24,000 (1996 = 0)
NBV = Cost – Total depreciation = £44,000 – £24,000 = £20,000
Profit or loss on sale = Proceeds – NBV = £18,000 – £20,000 = £2,000 loss - Not Correct
- Not Correct
- Not Correct
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