ACCA Applied Knowledge · Financial Accounting · Depreciation
A company bought a machine for $120,000 on 1 January 20X1, depreciated straight-line over 10 years with no residual value. On 1 January 20X4 it was sold for $75,000. What is the profit or loss on disposal?
The disposal results in a loss of $9,000. After three years of $12,000 depreciation the carrying amount is $84,000, and proceeds of $75,000 are lower than that. Reversing the sign would wrongly show a profit.
- ALoss of $9,000
- BProfit of $9,000Correct
- CProfit of $39,000
- DLoss of $45,000
Explanation
Annual depreciation is $12,000. After three years accumulated depreciation is $36,000, so carrying amount is $84,000. Proceeds of $75,000 less $84,000 gives a loss of $9,000. Profit of $9,000 reverses the sign.
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