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Gandalf bought a teleportation machine for $80000 in January 20X1. The machine had an expected useful life of six years and an expected residual value of $20000. The machine was depreciated on the straight-line basis. At the end of December 20X4, the machine was sold for $30000. Gandalf charges pro rata depreciation. The total amount charged to the statement of profit or loss over the life of the machine was:
A. $50000
B. $30000
C. $60000
D. $40000My answer was D with straight line depreciation, but the correct one was A. $50000. Must have something to do with pro-rata
It isn’t to do with pro-rata depreciation.
They will charge depreciation each year but then on sale there will be a profit or loss on sale (and both the depreciation and the profit or loss on sales will go to the SOPL.
So the total that will be charged to the SOPL over the period will be the difference between the original cost of 80,000 and the sales proceeds of 30,000.
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