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Hi,Sir.
I don’t understand this question actually?Can you explain to me?
Benny Co purchases a machine for which the supplier’s list price is $28000. Benny pays $23000 in cash and trades in an old machine which has a net book value of$8000. it is the company’s policy to depreciate such machines at the rate of10% per annulment on cost.
How to do this question?
The answer is $25200
Kindly reply,
Thank you.
what is the question asking? u didnt mention that. is it asking for profit/loss on the sale?
Sorry.i had forgotten to wrote to the question,the question is need what is the net book value of the new machine after one year?
the machine cost 28000. whether it was a trade-in or an outright purchase, the thing is…. the cost of the machine is 28k.
in this case, 23k was paid in cash 5k was the value of the old machine that was traded in.
the net book value of the old machine will just give u the profit/loss in the sale of the old machine. that has nothing to do with the total price paid for the new machine (23 cash + 5 (trade in value of machine)
the whole point of the question is whether u understand the above.
so, since the total cost is 28, the depreciation for the first year is 2800. thus the NBV is 28,000-2800=25200.
hope this helps
Thanks for your kind reply.it really helps me a lot.i had understood better now.
by the way..can u tell me how much profit/loss was made on the old machine?
the nbv is 8. but the trade in value was 5
loss/(profit)=nbv-sale price or nbv-tradein value
in this case loss=8-5=3
Oh i see.that means I have to watch again the online lecture,my basic still can’t understand well..sorry ….
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