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can you please help me with this question.
Sara, a limited liability company, depreciates its plant and machinery at 20% per annum on
the reducing balance, on assets held at the statement of financial position date. On
1 January 20X9 it held a machine which had cost $20,000 in the year ended 31 December
20X7. In the year ended 31 December 20X9 the company part-exchanged this machine for a
new machine. The amount paid for the new machine was $17,000 and a part exchange
allowance of $13,000 was allowed for the old machine.
What is the profit or loss on disposal of the old machine?
A Profit $800
B Profit $3,000
C Loss $200
D Profit $200The profit or loss is the difference between the sales proceeds and the carrying value (net book value).
The sale proceeds are effectively $13,000.
The carrying value you should be able to calculate by charging 20% reducing balance for 2 years (X7 and X8) on the cost of 20,000.
(You should end up with answer D )
The cost of the machine was 20,000.
One years depreciation at 20% reducing balance reduces its carrying value to 16,000.
A second years depreciation at 20% reducing balance reduces its carrying value to 12,800.The profit is the proceeds less the carrying value.
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