Question

Amrik started a business on 1 January 2017 and purchased a machine costing $18 000. He decided to depreciate the machine at 20% per annum using the reducing (diminishing) balance method. No depreciation was to be charged in the year of disposal. The machine was up sold for \$13 30 300 on 1 July 2018. What was the profit or loss on the sale of the machine? A Loss $1100 B Loss $4700 C Profit $1780 D Profit $2500 ОА Ов Ос OD

Answer 1

Answer: A. Loss $1,100

Explanation:

Value at the end of the first year after depreciation:

= 18,000 * (1 - 20%)

= $14,400

No depreciation was charged in the year of sale which is 2018 so only a year of depreciation applies.

Profit (loss) = Sales price - Net book value

= 13,300 - 14,400

= -$1,100