A company bought a machine on 1 October year 1 for $52,000. The machine had an e

Question

A company bought a machine on 1 October year 1 for $52,000. The machine had an expected life of eight years and an estimated residual value of $4,000. On 31 March year 6, the machine was sold for $35,000. The company’s yearend is 31 December. The company uses the straight-line method for depreciation and it charges a full year’s depreciation in the year of purchase and none in the year of sale. What is the profit or loss on disposal of the machine? A. Loss $13,000 B. Profit $7,000 C. Profit $10,000 D. Profit $13,000

Explanation / Answer

Answer: Option D -Profit $13,000

In $ Straight line depreciation per year 6000 ($52,000-$4,000)/8 Sales price of machinery in year 6 35000 Less: Book value of machinery in year 6 22000 ($52,000 - $6,000*5) Profit on sale of machinery 13000 (ans)

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