Day: March 21, 2024

Alex plc, which has a year-end of 31 December, purchased a machine on 1 January 2021 for £35,000.

It was depreciated at 40% per annum on the reducing balance basis.

On 1 January 2024, Alex plc part-exchanged this machine for a more advanced model.

Alex plc paid £30,000 and realised a profit on disposal of £2,440.

The price of the new machine was?

Select ONE answer:

1. £10,000
2. £34,680
3. £35,120
4. £40,000

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct
2. Not correct
3. Not correct
4. Correct –  The machine has had 3 years’ depreciation at 40% reducing balance. Carrying amount is therefore (£35,000 x 60% x 60% x 60%) = £7,560 Add profit on disposal = £2,440 ==> Part-exchange allowance = £10,000 + Payment £30,000 = Price of new machine = £40,000

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