- This topic has 3 replies, 2 voices, and was last updated 9 years ago by
.
- Posts
On 1 January 20X0 Goblin bought a machine for $63,000. It was estimated that the machine’s useful life would be 7 years and its residual value $7,000. Two years later the useful life was revised to four remaining years with a residual value of $7,000. At 31 December 20X4 the machine was sold for $30,000. No depreciation was provided in 20X4.
Would the answer be a loss of 7000? answer give loss of 3000 which I don’t quite understand why
The depreciation at the start is (63000 – 7000) / 7 = 8000 per year.
So after 2 years, the carrying value = 63000 – (2 x 8000) = 47000.
From then on the depreciation is (47000 – 7000) / 4 = 10000 per year.
Since it was bought on 1 Jan X0, the revising after 2 years takes place on 31 Dec X1.
It is sold on 31 Dec X4, but there is no depreciation for X4, so just for X2 and X3.
So carrying value at date of sale is 47,000 – (2 x 10,000) = 27,000.
It was sold for 30,000, so a profit on sale of 30,000 – 27000 = 3000.
(If the answer says a loss on sale it is wrong – there is a profit on sale of 3,000)
- You must be logged in to reply to this topic.