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An entity bought a machine on 1 October 20×2 for $ 52,000.The machine had an expected life of eight years and an estimated residual value of $4,000.
On 31 March 20×7 the machine was sold for $35,000.The entity’s year-end is 31 December. The entity uses the straight line method for depreciation and it charges a full year’s depreciation in the year of purchases and none in the year of sale.
What was the profit or loss on disposal of the machine?
A.loss $13,000
B.profit $7,000
C.profit $10,000
D.profit $13,000Please show all the calculation!
The machine will be written down from 52k to 4k over 8 years.
Work out its NBV at the dste of disposal (note you are told there is no charge in the final year). The difference between the NBV and the proceeds is the profit or loss on disposal.
As the asset value is 52k and full depreciation on purchase year and no for disposal year, it means calculation like
asset value 52k
Depreciation 20×2 to 20×6 (52k-4k(as the residual value))/8 years*5 years=30k
Now the net book value of the asset is (52k-30k)=22k
Sell price is 35k and net book value is 22k so 13k is profit as you have sold the asset more than its value.Hope you understand
Ans: D
52000 – 4000 ÷ 5 = 9600 (per year)
9600 * 5 = 48000
48000 – 35000 = 13000 (profit)
Depreciation per year = (52K – 4K)/8 = 6000 pa.
Bought accounting y/e 31/12/20X2, sold accounting y/e 31/12/20X7, but no depreciation in the final year.
So depreciation for X2, X3, X4, X5, X6: 5 years
Accoumulated depreciation at date of sale = 5 x 6,000 = 30,000
NBV at sale = 52,000 – 30,000 = 22,000
Profit on disposal = 35,000 – 22,000 = 13,000.A non current asset is being disposed off. what entries would appear in the disposal account?
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