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A company purchased a machine with useful life of 6yrs for 9000. After 2 years, the useful life is revised to 8yrs. The machine is depreciated at 30% per annum on RBM. A full years depre is charged in year on purchase with none in year of sale. During year 4, it is sold for 3000.
What if profit/loss on disposal?
Why does the solution show 9000 x0.7 x 0.7 x 0.7?
The depreciation is 30% reducing balance. Therefore the carrying value will fall by 30% each year and will be 70% of what it was before.
Given that there is no depreciation in the year of sale, they will have depreciated for 3 years and therefore the carrying value will have fallen to 9,000 x 70% x 70% x 70%.